South Korea Economy

10 Key excerpts on "South Korea Economy"

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  Contemporary South Korean Economy: Challenges And Prospects

  • Min-Hua Chiang(Author)
  • 2017(Publication Date)
  • WSPC

    (Publisher)

  The smooth economic development over the last few decades, however, is no shield for the problems and challenges that continue to plague South Korea’s economy today. The continuous economic slowdown in recent years indicated that the long-term economic growth model based on exports has encountered difficulties. Not only does South Korea has to contend with the Japanese, its long-term rival, it now also has to face another emerging but equally if not more competitive economic powerhouse, the Chinese. The unclear export prospect has already led policymakers in Korea to remain dependent on extra government spending for maintaining its economic growth. Korea’s heavy household and corporate debts are also the country’s major weakness as a spike in interest rate or a sharp economic slowdown could lead to serious debt default that will further erode the government’s financial strength.

  This chapter aims to offer an overall evaluation of South Korea’s macroeconomic performance and main policy response to the sluggish economy in recent years in a few significant areas: the main components of GDP growth and the resultant reasons behind the recent economic slowdown; the external trade development; the foreign direct investment (FDI) in South Korea and South Korean companies’ expansion through outward direct investment (ODI); the piling South Korea’s household and corporate debts; and the growth potential of Korea, both short-term and long-term.

  Explaining South Korea’s Economic Slowdown

  South Korea’s economy grew 2.6% in 2015, well below its projection of 3.9% at the beginning of the year, attributed largely to the weak exports and sluggish private consumption brought about by the spread of the Middle East respiratory syndrome (MERS) between May and July 2015. However, looking at Korea’s economic growth in a wider timespan, the slower economic expansion had taken place a few years ago. Between 2010 and 2012, the sluggish economic growth was accompanied by shrinking activities in both manufacturing and services (Figure 1-1

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  The Koreans

  Contemporary Politics And Society, Third Edition

  • Donald S Macdonald, Donald N Clark(Authors)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  The international current account ( balance of payments ), which includes "invisible" exports and imports such as tourism, showed a deficit of $6.1 billion in 1994. This was the fifth straight year of trade deficits for south Korea following a series of surpluses between 1986 and 1989. Cumulative foreign debt, which peaked at nearly $47 billion in 1985 and had fallen to $24 billion in 1988, was back up to $42.5 billion in 1994, a figure that would have been more alarming if the GNP had not nearly quadrupled in the intervening decade. One reason for this trend was Korea's emphasis on the domestic market and policies of import liberalization in the early 1990s. Another was the combined effect of the "Three Blessings": the collapse of world oil prices, low international interest rates, and the devaluation of the U.S. dollar against the Japanese yen—which helped Korean exports compete with Japanese goods.

  South Korea's economic system, still in evolution, is intermediate between state capitalism and free enterprise. Government economic powers—both formal and informal—are pervasive and are facilitated by a long tradition of political supremacy over economics. Public ownership (chiefly utilities, fertilizer, iron and steel, chemicals, and other heavy industry) has been as high a percentage of Korea's industrial plant as in India, which calls itself a socialist state but has a large private sector.22 The government sets overall goals, both in successive five-year plans (the Seventh Five-Year Plan began in 1992—see below) and in yearly pro grams, and it guides industry by means of export and production targets, the control of credit (probably its most powerful lever), and various informal means of pressure and persuasion, as well as the usual fiscal and monetary controls of the economy as a whole.23 Thus the Korean government plays a major role in the national economic enterprise and is, in effect, its senior partner.

  TABLE 6.1 South Korean Economic Indicators: South Korean Economic Development, 1986-1996

  	Target
  	1986	1990	1994	1996
  Socioeconomic Indicators
  Population (millions)	41.6	43.1	45.5	N/A
  Population growth rate (percent)	1.2	1.2	1.04	N/A
  Economic Indicators
  GNP ($ billions)	102.7	204.6	355.9	492.6
  Real GNP growth rate (percent)	12.9	9.3	8.2	7.0
  Per capita GNP ($)

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  The Political Economy of East Asia

  Regional and National Dimensions

  • K. Cai(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  In a final analysis, such persistent influence of the state in the nation’s eco- nomic development might probably be explained by some unique social and cultural conditions of South Korea like a strong sense of national identity, loyalty, collectivism, paternalism, and acceptance of authority. 5.3 The rise of the South Korean economy At the end of the Korean War in 1953, South Korea inherited an eco- nomy that had been devastated by the war, an impoverished population, 96 The Political Economy of East Asia and a country that lacked resources. Furthermore, the division of the peninsula along the 38th parallel had left most of the nation’s industry and natural resources in the North, while the South possessed a backward agrarian economy with agriculture, forestry, and fishing accounting for 47% of GNP and manufacturing for less than 9%. 15 With such unfavor- able economic and social conditions, together with a constant security threat from the north, it seemed to be an extremely difficult task at the time for South Korea to bring economic recovery and build a sound eco- nomy. After over five decades of development, however, South Korea has transformed dramatically from a small, stagnant agricultural subsist- ence economy into a modern industrialized economy, achieving what is called the “Miracle on the Han River.’ ’ In retrospect, there has been a clear trajectory of the rise of the South Korean economy over the past five decades. During the first postwar decade, South Korea remained locked in the so-called “vicious cycle’’ of poverty. Although the reconstruction of the infrastructure and factor- ies that had been destroyed in the war was completed by mid-1957, the South Korean leaders failed to take effective measures timely to pro- mote economic growth. In the meantime, the government adopted an import-substitution industrial policy and made limited attempts to pro- mote exports.

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  Korean Multinationals in Europe

  • Judith Cherry(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  Chapter Three The Economic Context: The Republic of Korea (1948–1997)

  Having examined the western and Korean perspectives on the theoretical foundation for foreign direct investment, the economic context in which foreign direct investment has occurred will now be analyzed. Of particular interest are the policies adopted by successive governments (which will be considered in depth at a later stage in the context of 'irreversible decisions') and changes in the domestic and global business environment that have had a significant impact on the Korean economy. These are changes that may have encouraged or even forced Korean firms to engage in overseas investment. The growth of the Korean conglomerates or chaebŏl will also be described, so that general patterns in their development may be understood and afford insight into the question of the impact of oligopolistic industrial structures within the Korean economy.

  The Growth and Development of the Korean Economy

  The five decades following the establishment of the Republic of Korea in 1948 saw the transformation of the South Korean economy from a small, stagnant, agricultural subsistence economy into one of the world's leading Newly Industrializing Economies (NIEs), along with Hong Kong, Singapore, and Taiwan. In 1996, the Republic of Korea became only the second Asian country (after Japan) to join the Organization for Economic Cooperation and Development (OECD). At the time of joining, South Korea was the 11th largest economic power and the 12th largest trading nation in the world (Economic Report November 1996: 26-27).

  South Korea's success story can be summarized, in a few remarkable statistics: between 1962 and 1997, the economy recorded an average annual growth rate in excess of 8.0 per cent. In little more than three decades, gross national product (GNP) expanded from US$2 billion to US$286 billion, per capita GNP rose from US$82 to US$9,511 (having peaked at US$10,543 in 1996), and exports soared from US$55 million to US$136 billion (at current market prices) (National Statistics Office 1997: 212-213, 223 and Business Korea

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  A New Paradigm for Korea's Economic Development

  From Government Control to Market Economy

  • S. Jwa(Author)
  • 2001(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Such a task, apart from being a truly gargantuan endeavor, would be rather pointless considering the abundance of material already in existence that focuses on all major areas of the Korean economy. Rather, we seek to focus on a number of important issues concerning the reforms of economic sectors in Korea. In doing so, we deal not only with macroeconomic policy issues including the role of government in 16 A New Paradigm for Korea’s Economic Development economic management but also with various structural characteristics, such as the problems directly related to chaebols, as well as the financial and institutional weaknesses within the Korean economy. We argue that all of these are underlying causes of the economic crisis that hit the nation so severely in 1997. We will closely examine these and other factors in detail, in places offering theoretical analysis on the basis of empirical observations. It is within this framework that we approach the matter of economic reform in a range of sectors, and in doing so we offer some thought on the reforms instigated by the Kim Dae-Jung administration. Appendix 1.1: Korea’s experience of industrial policies Schematically, the pattern of Korean industrial policies during the last thirty years could be depicted as a cycle of: (i) government selection of industries and corporations to be supported → (ii) mobilization of tax and financial resources and drafting of trade policies to support the selected industries → (iii) government-led restructuring of industries and corporations in distress. The government actively intervened at every phase of the cycle. Entry and exit barriers, and financial and tax supports, were the tools of industrial policy. Entry barriers basically allowing only the existing large corporations to enter targeted indus- tries and policies designed to support these corporations contributed to the rise of big diversified enterprises, the Korean chaebols.

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  The Koreas

  • Mary E. Connor(Author)
  • 2009(Publication Date)
  • ABC-CLIO

    (Publisher)

  C HAPTER 4 Economy Mary E. Connor The recent economic history of the Koreas showcases some similarities but is largely a study in contrasts. North Korea is an impoverished country that has chosen to focus on self-reliance, leading to virtual isolation and insolvency. The economy is centrally planned and largely state-owned. The nation is something of an anachronism, living out the label of Hermit Kingdom. On the other hand, few countries in the world have matched South Korea’s rapid economic progress and successful integration into the global economy. In slightly more than one generation, a country with few natural resources resurrected itself from profound poverty to become one of the world’s fore- most economic powers, achieving one of history’s most rapid rates of economic growth. Though central planning and government involvement played a key role in the economic development of both countries, the trajectory of that involvement—and the subsequent development—was very different. ECONOMIC DEVELOPMENT In the 19th century, the West made forays into East Asia in order to benefit from new trade. Along with military muscle to force favorable treaty concessions, attempts were made to modernize the ancient cultures. Japan adopted the industrial and military techniques and technology of the Western powers and was eager to copy their dynamic expansionism as well. In 1876, Japan forced commercial rela- tions on Korea, where a stagnant agrarian economy and weak government policies inhibited development, and similar agreements were soon made between Korea and such Western powers as the United States and Russia. Japan soon became the 101 dominant foreign influence in Korea, however, and forced a protection treaty in 1905 that was followed by formal annexation as a Japanese colony in 1910. Invest- ments in electricity, communication services, and railroad construction quickly facilitated a move toward modernization in Korea.

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  Link Proceedings 1991, 1992: Selected Papers From Meetings In Moscow, 1991 And Ankara, 1992

  Selected Papers from Meetings in Moscow, 1991, and Ankara, 1992

  • Lawrence R Klein, Bert G Hickman(Authors)
  • 1998(Publication Date)
  • World Scientific

    (Publisher)

  DEVELOPMENT ECONOMIES This page is intentionally left blank INDUSTRIAL POLICY IN KOREA: PAST EXPERIENCES AND FUTURE DIRECTIONS OH-SEOK HYUN Director- General of the Budget Office at the Ministry of Finance and Economy of the Government of the Republic of Korea 1. Introduction For almost three decades, the Korean economy has sustained a high growth rate, which has been associated with continuous industrial restructuring. Industrial restructuring in Korea has been going through a process of rapid industrial transformation punctu-ated by two watershed transitions — the shift to a more capital-intensive industrial structure in the mid-1970s and the move to a more technology-intensive structure after the mid-1980s. To sustain a high rate of economic growth in the face of the rapidly changing international environment, Korea must continuously adjust its indus-trial structure on the basis of international comparative advantage. In this respect, industrial policy remains at the center of the debate about Korea's economic future. The right industrial policy depends on constantly changing factors: the nature of market failures facing the economy and the scope and effectiveness of policy instru-ments available to government. Some market failures vanish with development, while others take their place at more advanced stages of development. Instruments that are appropriate in one economic environment become ineffective, illegal, or too risky in others. The evolution of political institutions may change how a particular instru-ment is used, so that, over time, the same instrument may produce different and less satisfactory results. The purpose of this paper is to explore some of the industrial restructuring concerns facing the Korean economy when direct government intervention is rapidly being re-placed by functional incentives. The paper starts with a brief review of industrial policy from a historical perspective.

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  Policy and Economic Performance in Divided Korea During the Cold War Era

  1945-91

  • Nicholas Eberstadt(Author)
  • 2010(Publication Date)
  • AEI Press

    (Publisher)

  broad similarities in some important respects between the microeconomic environment in the Republic of Korea and those other developing countries in the 1960s, 1970s, and 1980s. Weak civil institutions, in conjunction with a powerful and far-reaching state apparatus, framed a commercial environment in which transaction costs appeared high, information was costly and often difficult to acquire, and the risks attendant on economic activity and economic exchange were considerable. What would appear to separate the Republic of Korea from most other developing countries during this period is not the institutional structure in which commerce was conducted, but rather the results achieved within that context.

  Macroeconomic Issues: Market Structure, Allocative Efficiency, and Technical Efficiency

  The South Korean development strategy also encompassed a variety of policies and practices whose consequences for macroeconomic performance, according to conventional economic analysis, should have been broadly adverse. Many of these activities concerned the South Korean state’s far-reaching interventions in both factor and product markets to influence, shape, or even completely reconfigure the market structure in particular industries or entire economic sectors.

  The literature on “industrial organization” that flourished earlier in the twentieth century, and has enjoyed rejuvenation over the past several decades, points to some of the theoretical issues in question.134 One of the basic tenets of this literature is that “barriers to entry” and other impediments to competition, whether “natural” or imposed, result in misallocations of resources that tend to reduce technical efficiency at the micro level and thus, ultimately, to depress productivity at a macro level. Drawing on—but also drawing beyond—this literature, development economics has paid increasing attention to the macroeconomic (social) costs of “market segmentation” in both factor and product markets brought on by “government failure,” tracing the connections between the misallocation of resources in particular subsectors and suboptimal performance of the economy as a whole.135

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  Korea's Twentieth-Century Odyssey

  A Short History

  • Michael E. Robinson(Author)
  • 2007(Publication Date)
  • University of Hawaii Press

    (Publisher)

  It was, however, no miracle, with its condescending implication that for Koreans to build an indus-trialized economy was a miraculous event. Miracle better describes the speed and breadth of the development. The mechanics of the phenomenon are now well known. South Korea’s rapid growth stemmed from creating a good plan and from the country’s inexpensive, disciplined labor force and its entrepreneurial talent, both of which were strengthened by certain historical and cultural factors. Fur-thermore, open world export markets and certain fortuitous world events helped the economic program at several crucial moments. The reorganized, authoritarian state under Park Chung Hee was able to orchestrate, sometimes with considerable coercion, the planning process and ensure that investment was channeled into effective activities so that foreign exchange earnings were not frittered away in unproductive ways. The result manifested itself in an average annual 8.2 percent increase in South Korean GNP over the two decades between 1962 and the late 1970s—a very rapid rate of growth by any measure (see Table 6.2) Table 6.2 Macroeconomic Indicators for Republic of Korea: 1965–2000 Year GDP % Growth Per Capita Income Exports Trade Balance (2000 $) of GDP (2006 $) (2006 $millions) (as % of GDP) 1965 3,018 1,295 251 - 7.61 1966 1,426 381 -10.10 1967 4,703 1,478 518 -10.89 1968 1,615 731 -13.02 1969 7,476 1,803 067 -12.21 1970 1,912 1,213 -10.19 1971 9,851 8.2 2,027 1,475 -10.60 1972 4.5 2,075 2,081 -4.80 1973 13,691 12.0 2,279 3,927 -3.16 1974 7.2 2,395 5,141 -11.16 1975 21,459 5.9 2,489 5,769 -8.52 (continued on next page)

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  South Korea

  A Socioeconomic Overview from the Past to Present

  • Daniel J. Schwekendiek(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Part 3Economic Perspectives of South Korea

  3.1 Economic Planning

  In his groundbreaking work on the economic development of literally all world regions observed over a millennium, Maddison (2001:148) concludes as follows: Korea succeeded in achieving the fastest growth of per capita income in Asia and the world over the past half century.

  Indeed, South Korea’s GDP improved dramatically from 1945 to 2001 (table 3.1.1 )—the latter being the last year of Maddison’s analysis. In 1950, South Korea’s share of the world’s GDP was 0.2 percent. However, in 1972, it already improved to 0.6 percent. By 2001, it held a share of 1.9 percent despite being one of the world’s poorest nations after World War II and after international experts predicting a mere agrarian future for the nation at that time. Figure 3.1.1 demonstrates that South Korea’s mean income has also drastically improved from about six hundred dollars in 1945 to almost twenty-two thousand dollars in 2010, putting South Korea on par with Japan and Western Europe (chapter 1.1 ). In 1950, South Korea’s GDP per capita (1,921 dollars) was below the world average (2,111 dollars) (figure 3.1.1 ). However, in 2010, South Korea (21,701 dollars) exceeded the world average (7,814 dollars) by almost 14,000 dollars per capita. The minor trough in the early 1980s (figure 3.1.1 ) was caused by the assassination of PARK Chung Hee, a disastrous national harvest, and the second oil-price shock (Sakong 1993:4). Needless to say, the large trough in the late 1990s was a result of the Asia crisis.

  How did South Korea manage to become the world’s fastest-growing economy in terms of GDP-per-capita growth rates during the second half of the twenty-first century? The key to that answer was military culture (Table 3.1.2 ) and economic planning (Table 3.1.3 ), which will be discussed in the following.

  Table 3.1.1 GDP levels in South Korea and the world, 1945–2001.

  Note: GDP levels in international dollars. Western Europe is a twelve-country average (Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, and United Kingdom).

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