This book offers an explanation for the two contrasting economic paths taken by Taiwan and South Korea after World War II. In particular, it tries to explain why the two countries, facing similar challenges, evolved very different economic organizations. The book is a combined effort by an economist and an economic sociologist. It is divided into two parts: the first primarily theoretical and the second empirical.

Part one begins with a brief review of how business networks have been explained by economists and sociologists. Then chapter two gives a concise overview of South Korean and Taiwanese business groups and how they differ. The authors show that Taiwanese business groups are not only much smaller than Korean groups but also play a more limited role in the economy. Whereas Korean groups are found everywhere, Taiwanese groups are concentrated in domestic upstream and service industries. Previous research has tried to explain the existence of business groups as a response to pre-existing social and political conditions. The authors argue that competition and cooperation among businesses is itself an important factor shaping the economy, and thus business group formation is better explained by a nonlinear general equilibrium model in which business decisions and social and political factors all interact to determine what type business groups develop. The authors' business group model is that developed in Feenstra, Huang, and Hamilton (“A Market-Power Based Model of Business Groups.” Journal of Economic Behavior and Organization 51, no. 4 [2003]: 459–85) and is described in chapter three. The model assumes that the economy has an upstream and downstream sector and that each sector is characterized by monopolistic competition. Business groups are formed to enforce profit-maximizing, two-part-pricing agreements between upstream and downstream firms. A key feature of this model is that there are multiple equilibria so that similar economies may follow different paths, developing very different business group patterns, which themselves are causative forces shaping the economy. Chapter four quantifies the differences in South Korean and Taiwanese business groups and shows that the model presented in chapter three can be used to simulate many aspects of the two economies.

The second part of the book does not rigorously test the business group model presented in chapter three, but uses the model as an “ideal type” to help make sense of the two contrasting economic stories Taiwan and South Korea present. Chapter five describes the differing political and social conditions in the two economies. This chapter argues that long-term social conditions were key determinants of the different paths taken by the two economies and the contemporary political policies were largely endogenous and played a reinforcing role. Chapter six describes the exogenous rise in international demand to which Taiwan and South Korea responded. This rise in demand is attributed to the retail revolution in the United States. Chapter seven describes in concrete terms how United States retailers and producers in Taiwan and South Korea found each other. Japanese trading firms played a key role in this process, but due to social and economic differences, matching between retailers and producers evolved differently in the two contrasting East Asian economies, affecting their economic organization. Chapter eight shows that Taiwan and South Korea's export patterns diverged as the economies developed, with Taiwan producing a much greater variety of lower-quality niche goods while South Korean business groups concentrated on fewer types of higher quality goods. This pattern is what the authors' theoretical model would predict.

This is a stimulating book, which should be on all economic library shelves. The book's primary strengths are, first, its coherent weaving of insights gained from both economics and economic sociology and, second, its breadth of vision. The authors not only gain insight into various industries by considering each industry's relationship to the overall national economy, but also advance a strong argument for export-led growth based on their research into the relationship between these two national economies and the world economy. The authors succeed in their limited goal of showing the plausibility of a market-power model, but tests of whether this model is more plausible than competing models, such as new institutionalist models, is largely left to further research.

Although the authors show a breadth of vision, limited resources have forced them to focus on only two economies, and this weakens support for some of the authors' conclusions. For example, the Hong Kong economy and its exports bore a close family resemblance to the economy and exports of Taiwan, but the Hong Kong economy took off ten years before the Taiwan economy and in the early years relied heavily on exports to British markets. Thus, although the chapters of this book focusing on the U.S. retail revolution and its effect on East Asia are one of the most interesting parts of this book, one is left wondering whether the importance of the U.S. retail revolution has been exaggerated.