South Korean Economy

South Korea recently pulled through an economic storm that began in late 1997. This crisis, which roiled markets all across Asia, had threatened South Korea’s remarkable economic achievements. However, thanks to the faithful implementation of an IMF agreement the South Korean government’s strong resolve for reform, and successful negotiation of foreign debt restructuring with creditor banks the nation is currently on track to resume economic growth. Since the onset of the crisis, South Korea has been rapidly integrating itself into the world economy. The goal of the nation is to overcome problems rooted in the past by creating an economic structure suitable for an advanced economy.

South Korea, once known to be one of the world’s poorest agrarian societies, has undertaken economic development in earnest since 1962. In less than four decades, it achieved what has become known as the “Miracle on the Hangang River” – an incredible process that dramatically transformed the South Korean economy while marking a turning point in South Korea’s history.

An outward-oriented economic development strategy, which used exports as the engine of growth, contributed greatly to the radical economic transformation of South Korea. Based on such a strategy, many successful development programs were implemented. As a result, from 1962 to 2005, South Korea’s Gross National Income (GNI) increased from US$2.3 billion to US$786.8 billion, with its per capita GNI soaring from $87 to about $16,291. These impressive figures clearly indicate the magnitude of success that these economic programs have brought about.

GNI and per capita GNI drastically dropped to $340.4 billion and $7,335 in 1998 due to the fluctuation in foreign exchange rates but these figures returned to the pre-economic crisis level in 2002.

Korean imports have steadily increased thanks to the nation’s liberalization policy and increasing per capita income levels. As one of the largest import markets in the world, the volume of Korea’s imports exceeded those of China in 1995, and were comparable to the imports of Malaysia, Indonesia, and the Philippines combined.

Major import items included industrial raw materials such as crude oil and natural minerals, general consumer products, foodstuffs and goods such as machinery, electronic equipment and transportation equipment.

Korea developed rapidly from the 1960s, fueled by high savings and investment rates, and a strong emphasis on education. The nation became the 29th member country of the Organization for Economic Cooperation and Development (OECD) in 1996.

With a history as one of the fastest growing economies in the world, Korea is working to become the focal point of a powerful Asian economic bloc during the 21st century. The Northeast Asian region commands a superior pool of essential resources that are the necessary ingredients for economic development. These include a population of 1.5 billion people, abundant natural resources, and large-scale consumer markets.

Economy – overview

Since the 1960s, South Korea has achieved an incredible record of growth and integration into the high-tech modern world economy. Four decades ago, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. In 2004, South Korea joined the trillion dollar club of world economies. Today its GDP per capita is equal to the lesser economies of the EU. This success was achieved by a system of close government/business ties, including directed credit, import restrictions, sponsorship of specific industries, and a strong labour effort. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption. The Asian financial crisis of 1997-99 exposed longstanding weaknesses in South Korea’s development model, including high debt/equity ratios, massive foreign borrowing, and an undisciplined financial sector. GDP plunged by 6.9% in 1998, then recovered 9.5% in 1999 and 8.5% in 2000. Growth fell back to 3.3% in 2001 because of the slowing global economy, falling exports, and the perception that much-needed corporate and financial reforms had stalled. Led by consumer spending and exports, growth in 2002 was an impressive 7%, despite anemic global growth. Between 2003 and 2006, growth moderated to about 4-5%. A downturn in consumer spending was offset by rapid export growth. Moderate inflation, low unemployment, an export surplus, and fairly equal distribution of income characterise this solid economy.

GDP (purchasing power parity)
$1.18 trillion (2006 est.)

GDP (official exchange rate)
$897.4 billion (2006 est.)

GDP – real growth rate
4.8% (2006 est.)

GDP – per capita (PPP)
$24,200 (2006 est.)

GDP – composition by sector
agriculture: 3%
industry: 45%
services: 52% (2006 est.)

Labour force :
23.77 million (31 December 2006 est.)

Labour force – by occupation :
agriculture: 6.4%
industry: 26.4%
services: 67.2% (2006 est.)

Unemployment rate :
3.3% (December 2006 est.)

Population below poverty line :
15% (2003 est.)

Household income or consumption by percentage share :
lowest 10%: 2.9%
highest 10%: 25% (2005 est.)

Distribution of family income – Gini index :
35.8 (2000)

Inflation rate (consumer prices) :
2.2% (2006 est.)

Investment (gross fixed) :
28.4% of GDP (2006 est.)

Budget :
revenues: $200 billion
expenditures: $201 billion; including capital expenditures of $NA (2006 est.)

Public debt :
31.9% of GDP (2006 est.)

Agriculture – products :
rice, root crops, barley, vegetables, fruit; cattle, pigs, chickens, milk, eggs; fish

Industries :
electronics, telecommunications, automobile production, chemicals, shipbuilding, steel

Industrial production growth rate :
8% (2006 est.)

Electricity – production :
345.2 billion kWh (2004)

Electricity – production by source :
fossil fuel: 62.4%
hydro: 0.8%
nuclear: 36.6%
other: 0.2% (2001)

Electricity – consumption :
321 billion kWh (2004)

Electricity – exports :
0 kWh (2004)

Electricity – imports :
0 kWh (2004)

Oil – production :
7,378 bbl/day (2004)

Oil – consumption :
2.149 million bbl/day (2004)

Oil – exports :
645,200 bbl/day (2004)

Oil – imports :
2.263 million bbl/day (2004)

Natural gas – production :
0 cu m (2004 est.)

Natural gas – consumption :
27.84 billion cu m (2004 est.)

Natural gas – exports :
0 cu m (2004 est.)

Natural gas – imports :
28.93 billion cu m (2004 est.)

Current account balance :
$2 billion (2006 est.)

Exports :
$326 billion f.o.b. (2006 est.)

Exports – commodities :
semiconductors, wireless telecommunications equipment, motor vehicles, computers, steel, ships, petrochemicals

Exports – partners :
China 21.8%, US 14.6%, Japan 8.5%, Hong Kong 5.5% (2005)

Imports :
$309.3 billion f.o.b. (2006 est.)

Imports – commodities :
machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals, plastics

Imports – partners :
Japan 18.5%, China 14.8%, US 11.8%, Saudi Arabia 6.2% (2005)

Reserves of foreign exchange and gold :
$239 billion (2006 est.)

Debt – external :
$249.4 billion (30 September 2006 est.)

Economic aid – donor :
ODA, $744 million (2005)

Currency (code) :
South Korean won (KRW)

Exchange rates :
South Korean won per US dollar – 955.3 (2006), 1,024.1 (2005), 1,145.3 (2004), 1,191.6 (2003), 1,251.1 (2002)

Fiscal year :
calendar year

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