Economy of South Korea
Encyclopedia
South Korea
has a market economy
which ranks 15th in the world by nominal GDP and 12th by purchasing power parity
(PPP), identifying it as one of the G-20 major economies
. It is a high-income developed country
, with a developed market
, and is a member of OECD. South Korea is one of the Asian Tigers, and is the only developed country so far to have been included in the group of Next Eleven
countries. South Korea had one of the world's fastest growing economies from the early 1960s to the late 1990s, and South Korea is still one of the fastest growing developed countries in the 2000s, along with Hong Kong
, Singapore
, and Taiwan
, the other three members of Asian Tigers. South Koreans refer to this growth as the Miracle on the Han River
. Having almost no natural resources and always suffering from overpopulation in its small territory, which deterred continued population growth and the formation of a large internal consumer market, South Korea adapted an export-oriented economic strategy to fuel its economy, and in 2010, South Korea was the seventh largest exporter and tenth largest importer in the world.
Despite the South Korean economy's high growth potential and apparent structural stability, South Korea suffers perpetual damage to its credit rating in the stock market due to the belligerence of North Korea
in times of deep military crises, which has an adverse effect on the financial markets of the South Korean economy. However, renowned financial organizations, such as the International Monetary Fund
, also compliment the resilience of the South Korean economy against various economic crises, citing low state debt, and high fiscal reserves that can quickly be mobilized to address any expected financial emergencies. South Korea was one of the few developed countries that was able to avoid a recession
during the global financial crisis, and its economic growth rate will reach 6.1% in 2010, a sharp recovery from economic growth rates of 2.3% in 2008 and 0.2% in 2009 when the global financial crisis hit.
South Korea was a historical recipient of official development assistance (ODA) from OECD. Throughout the 1980s until the mid 1990s, South Korea's economic prosperity as measured in GDP by PPP per capita was still only a fraction of industrialized nations. In 1980, the South Korean GDP per capita was $2,300, about one-third of nearby developed Asian economies such as Singapore, Hong Kong, and Japan. Since then, South Korea has advanced into a developed economy to eventually attain a GDP per capita of $30,000 in 2010, almost thirteen times the figure thirty years ago. The whole country's GDP increased from $88 billion to $1,460 billion in the same time frame. In 2009, South Korea officially became the first major recipient of ODA to have ascended to the status of a major donor of ODA. Between 2008 and 2009, South Korea donated economic aid of $1.7 billion to countries other than North Korea
. South Korea's separate annual economic aid to North Korea has historically been more than twice its ODA.
A downturn in the South Korean economy in 1989 spurred by a sharp decrease in exports and foreign orders caused deep concern in the industrial sector. Ministry of Trade and Industry analysts stated that poor export performance resulted from structural problems embedded in the nation's economy, including an overly strong won, increased wages and high labor costs, frequent strikes, and high interest rates. The result was an increase in inventories and severe cutbacks in production at a number of electronics, automobile, and textile manufacturers, as well as at the smaller firms that supplied the parts. Factory automation systems were introduced to reduce dependence on labor, to boost productivity with a much smaller work force, and to improve competitiveness. It was estimated that over two-thirds of South Korea's manufacturers spent over half of the funds available for facility investments on automation.
expanded by an average of more than 8 percent per year, from US$2.7 billion in 1962 to US$230 billion in 1989, breaking the trillion dollar mark in 2007. Nominal GDP per capita grew from $103.88 in 1962 to $5,438.24 in 1989, reaching the $20,000 milestone in 2007. The manufacturing sector grew from 14.3 percent of the GNP in 1962 to 30.3 percent in 1987. Commodity trade volume rose from US$480 million in 1962 to a projected US$127.9 billion in 1990. The ratio of domestic savings
to GNP grew from 3.3 percent in 1962 to 35.8 percent in 1989.
The most significant factor in rapid industrialization was the adoption of an outward-looking strategy in the early 1960s. This strategy was particularly well suited to that time because of South Korea's poor natural resource endowment, low savings rate, and tiny domestic market. The strategy promoted economic growth through labor-intensive manufactured exports, in which South Korea could develop a competitive advantage. Government initiatives played an important role in this process. The inflow of foreign capital was greatly encouraged to supplement the shortage of domestic savings. These efforts enabled South Korea to achieve rapid growth in exports and subsequent increases in income.
By emphasizing the industrial sector, Seoul's export-oriented development strategy left the rural sector relatively underdeveloped. Except for mining, most industries were located in the urban areas of the northwest and southeast. Heavy industries generally were located in the south of the country. Factories in Seoul contributed over 25 percent of all manufacturing value-added in 1978; taken together with factories in surrounding Gyeonggi Province, factories in the Seoul area produced 46 percent of all manufacturing that year. Factories in Seoul and Gyeonggi Province employed 48 percent of the nation's 2.1 million factory workers. Increasing income disparity between the industrial and agricultural sectors became a serious problem by the 1970s and remained a problem, despite government efforts to raise farm income and improve rural living standards.
, Samsung Heavy Industries
, Daewoo Shipbuilding & Marine Engineering
, and STX Offshore & Shipbuilding, the world's four largest shipbuilding companies. South Korea also owns STX Europe, which is Europe
's largest shipbuilder.
is Korea's largest automaker.
, which, when all five phases were completed, was projected to cost US$27 billion. South Korean construction companies signed over US$7 billion of overseas contracts in 1989. Korea's largest construction companies include Samsung C&T Corporation
, who had built noteworthy constructs such as Petronas Towers, and Burj Khalifa
Since the 1980s, South Korea, now in possession of more modern military technology than in previous generations, has actively began shifting its defense industry's areas of interest more from its previously homeland defense-oriented militarization efforts, to the promotion of military equipments and technology as mainstream products of exportation to boost its international trade. Some of its key military export projects include T-155 Firtina
self-propelled artillery for Turkey
; K11 air-burst rifle for United Arab Emirates; Bangabandhu class guided-missile frigate for Bangladesh
; fleet tankers such as Sirius class
for the navies of Australia
, New Zealand
, and Venezuela; Makassar class amphibious assault ships for Indonesia
; and KT-1 trainer for Turkey
and Indonesia
.
South Korea has also outsourced its defense industry to produce various core components of other countries' advanced military hardware. Those hardware include modern aircraft such as F-15K fighters and AH-64 attack helicopters which will be used by Singapore
and Japan
, whose airframes will be built by Korea Aerospace Industries in a joint-production deal with Boeing. In other major oursourcing and joint-production deals, South Korea has jointly produced the S-300 air defense system of Russia
via Samsung Group
, and will facilitate the sales of Mistral class amphibious assault ships to Russia that will be produced by STX Corporation
. South Korea's defense exports were $1.03 billion in 2008 and $1.17 billion in 2009, and South Korea aims to increase the figure to $1.5 billion in 2010.
managed to purchase the motors division. Indian conglomerate Tata Group
, purchased the trucks and heavy vehicles division of Daewoo.
Actions by the South Korean government and debt swaps by international lenders contained the country's financial problems. Much of South Korea's recovery from the Asian Financial Crisis can be attributed to labor adjustments (i.e. a dynamic and productive labor market with flexible wage rates) and alternative funding sources. By the first quarter of 1999, GDP growth had risen to 5.4%, and strong growth thereafter combined with deflationary pressure on the currency lead to a yearly growth of 10.5%. In December 1999, president Kim Dae-jung declared the currency crisis over.
Like most industrialized economies, Korea suffered significant setbacks during the late-2000s recession that began in 2007. Growth fell by 3.4% in the fourth quarter of 2008 from the previous quarter, the first negative quarterly growth in 10 years, with year on year quarterly growth continuing to be negative into 2009. Most sectors of the economy reported declines, with manufacturing dropping 25.6% as of January 2009, and consumer goods sales dropping 3.1%. Exports in autos and semiconductors, two critical pillars of the economy, shrank 55.9% and 46.9% respectively, while exports overall fell by a record 33.8% in January, and 18.3% in February 2009 year on year. As in the 1997 crisis, Korea's currency also experienced massive fluctuations, declining by 34% against the dollar. Annual growth in the economy slowed to 2.3% in 2008, and was expected to drop to as low as -4.5% by Goldman Sachs
, but South Korea was able to limit the downturn to a near standstill at 0.2% in 2009.
Despite the global financial crisis, the South Korean economy, helped by timely stimulus measures and strong domestic consumption of products that compensated for a drop in export, was able to avoid a recession unlike most industrialized economies, posting positive economic growth for two consecutive years of the crisis. In 2010, South Korea made a strong economic rebound with a growth rate of 6.1%, signaling a return of the economy to pre-crisis levels. South Korea's export has recorded $424 billion in the first eleven months of the year 2010, already higher than its export in the whole year of 2008. The South Korean economy of the 21st century, as a Next Eleven
economy, is expected to grow from 3.9% to 4.2% annually between 2011 and 2030, similar to growth rates of developing countries such as Brazil or Russia.
In 1990, South Korean manufacturers planned a significant shift in future production plans toward high-technology industries. In June 1989, panels of government officials, scholars, and business leaders held planning sessions on the production of such goods as new materials, mechatronics—including industrial robotics—bioengineering, microelectronics, fine chemistry, and aerospace. This shift in emphasis, however, did not mean an immediate decline in heavy industries such as automobile and ship production, which had dominated the economy in the 1980s.
South Korea relies largely upon exports to fuel the growth of its economy, with finished products such as electronics, textiles, ships, automobiles, and steel being some of its most important exports. Although the import market has liberalized in recent years, the agricultural market has remained largely protectionist due to serious disparities in the price of domestic agricultural products such as rice with the international market. As of 2005, the price of rice in South Korea is about four times that of the average price of rice on the international market, and it was generally feared that opening the agricultural market would have disastrous effects upon the South Korean agricultural sector. In late 2004, however, an agreement was reached with the WTO in which South Korean rice imports will gradually increase from 4% to 8% of consumption by 2014. In addition, up to 30% of imported rice will be made available directly to consumers by 2010, where previously imported rice was only used for processed foods. Following 2014, the South Korean rice market will be fully opened.
In the early 1980s, in order to control inflation, a conservative monetary policy
and tight fiscal measures were adopted. Growth of the money supply
was reduced from the 30 percent level of the 1970s to 15 percent. Seoul even froze its budget for a short while. Government intervention in the economy was greatly reduced and policies on imports and foreign investment were liberalized to promote competition. To reduce the imbalance between rural and urban sectors, Seoul expanded investments in public projects, such as roads and communications facilities, while further promoting farm mechanization
.
These measures, coupled with significant improvements in the world economy, helped the South Korean economy regain its lost momentum in the late 1980s. South Korea achieved an average of 9.2 percent real growth between 1982 and 1987 and 12.5 percent between 1986 and 1988. The double digit inflation
of the 1970s was brought under control. Wholesale
price inflation averaged 2.1 percent per year from 1980 through 1988; consumer prices increased by an average of 4.7 percent annually. Seoul achieved its first significant surplus in its balance of payments in 1986 and recorded a US$7.7 billion and a US$11.4 billion surplus in 1987 and 1988 respectively. This development permitted South Korea to begin reducing its level of foreign debt. The trade surplus for 1989, however, was only US$4.6 billion dollars, and a small negative balance was projected for 1990.
In recent years, Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. South Korea bounced back from the 1997-98 Asian financial crisis with assistance from the International Monetary Fund (IMF), but its recovery was based largely on extensive financial reforms that restored stability to markets. These economic reforms, pushed by President Kim Dae-jung, helped Korea maintain one of Asia's few expanding economies, with growth rates of 10.8% in 1999 and 9.2% 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 have stalled. Led by industry and construction, growth in 2002 was 5.8%, despite anemic global growth. Restructuring of Korean conglomerates (chaebol
s), bank privatization, and creating a more liberalized economy with a mechanism for bankrupt firms to exit the market remain Korea's most important unfinished reform tasks. Growth slowed again in 2004, but production expanded 5% in 2006, due to popular demand for key export products such as HDTVs and mobile phone
s.
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In 2007, South Korea had 6.4 million visitors making it the 36th most visited country in the world. Recently, the number of tourists from China, Taiwan, Hong Kong, and Southeast Asia has grown dramatically due to the increased popularity of the Korean wave
("hallyu").
Seoul
is the principal tourist destination for visitors; popular tourist destinations outside of Seoul include Seorak-san national park, the historic city of Gyeongju
and semi-tropical Jeju Island
.
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
has a market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
which ranks 15th in the world by nominal GDP and 12th by purchasing power parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
(PPP), identifying it as one of the G-20 major economies
G-20 major economies
The Group of Twenty Finance Ministers and Central Bank Governors is a group of finance ministers and central bank governors from 20 major economies: 19 countries plus the European Union, which is represented by the President of the European Council and by the European Central Bank...
. It is a high-income developed country
Developed country
A developed country is a country that has a high level of development according to some criteria. Which criteria, and which countries are classified as being developed, is a contentious issue...
, with a developed market
Developed market
In investing, developed markets are those countries that are thought to be the most developed and therefore less risky.-FTSE Group's list:FTSE Group, a provider of economic and financial data, assigns the market status of countries as Developed, Advanced Emerging, Secondary Emerging or Frontier on...
, and is a member of OECD. South Korea is one of the Asian Tigers, and is the only developed country so far to have been included in the group of Next Eleven
Next Eleven
The Next Eleven are eleven countries—Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam — identified by Goldman Sachs investment bank and Jim O'Neill as having a high potential of becoming, along with the BRICS, the world's largest...
countries. South Korea had one of the world's fastest growing economies from the early 1960s to the late 1990s, and South Korea is still one of the fastest growing developed countries in the 2000s, along with Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, and Taiwan
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
, the other three members of Asian Tigers. South Koreans refer to this growth as the Miracle on the Han River
Miracle on the Han River
Miracle on the Han River refers to South Korea's highly accelerated export-fueled economic growth, including rapid industrialization, technological achievement, education boom, exponential rise in living standards, rapid urbanization, skyscraper boom, modernization, successful hosting of the 1988...
. Having almost no natural resources and always suffering from overpopulation in its small territory, which deterred continued population growth and the formation of a large internal consumer market, South Korea adapted an export-oriented economic strategy to fuel its economy, and in 2010, South Korea was the seventh largest exporter and tenth largest importer in the world.
Despite the South Korean economy's high growth potential and apparent structural stability, South Korea suffers perpetual damage to its credit rating in the stock market due to the belligerence of North Korea
North Korea
The Democratic People’s Republic of Korea , , is a country in East Asia, occupying the northern half of the Korean Peninsula. Its capital and largest city is Pyongyang. The Korean Demilitarized Zone serves as the buffer zone between North Korea and South Korea...
in times of deep military crises, which has an adverse effect on the financial markets of the South Korean economy. However, renowned financial organizations, such as the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, also compliment the resilience of the South Korean economy against various economic crises, citing low state debt, and high fiscal reserves that can quickly be mobilized to address any expected financial emergencies. South Korea was one of the few developed countries that was able to avoid a recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
during the global financial crisis, and its economic growth rate will reach 6.1% in 2010, a sharp recovery from economic growth rates of 2.3% in 2008 and 0.2% in 2009 when the global financial crisis hit.
South Korea was a historical recipient of official development assistance (ODA) from OECD. Throughout the 1980s until the mid 1990s, South Korea's economic prosperity as measured in GDP by PPP per capita was still only a fraction of industrialized nations. In 1980, the South Korean GDP per capita was $2,300, about one-third of nearby developed Asian economies such as Singapore, Hong Kong, and Japan. Since then, South Korea has advanced into a developed economy to eventually attain a GDP per capita of $30,000 in 2010, almost thirteen times the figure thirty years ago. The whole country's GDP increased from $88 billion to $1,460 billion in the same time frame. In 2009, South Korea officially became the first major recipient of ODA to have ascended to the status of a major donor of ODA. Between 2008 and 2009, South Korea donated economic aid of $1.7 billion to countries other than North Korea
North Korea
The Democratic People’s Republic of Korea , , is a country in East Asia, occupying the northern half of the Korean Peninsula. Its capital and largest city is Pyongyang. The Korean Demilitarized Zone serves as the buffer zone between North Korea and South Korea...
. South Korea's separate annual economic aid to North Korea has historically been more than twice its ODA.
History
The growth of the industrial sector was the principal stimulus to economic development. In 1986, manufacturing industries accounted for approximately 30 percent of the gross domestic product (GDP) and 25 percent of the work force. Benefiting from strong domestic encouragement and foreign aid, Seoul's industrialists introduced modern technologies into outmoded or newly built facilities at a rapid pace, increased the production of commodities—especially those for sale in foreign markets—and plowed the proceeds back into further industrial expansion. As a result, industry altered the country's landscape, drawing millions of laborers to urban manufacturing centers.A downturn in the South Korean economy in 1989 spurred by a sharp decrease in exports and foreign orders caused deep concern in the industrial sector. Ministry of Trade and Industry analysts stated that poor export performance resulted from structural problems embedded in the nation's economy, including an overly strong won, increased wages and high labor costs, frequent strikes, and high interest rates. The result was an increase in inventories and severe cutbacks in production at a number of electronics, automobile, and textile manufacturers, as well as at the smaller firms that supplied the parts. Factory automation systems were introduced to reduce dependence on labor, to boost productivity with a much smaller work force, and to improve competitiveness. It was estimated that over two-thirds of South Korea's manufacturers spent over half of the funds available for facility investments on automation.
Rapid growth from 1960s to 1980s
South Korea's real gross domestic productGross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
expanded by an average of more than 8 percent per year, from US$2.7 billion in 1962 to US$230 billion in 1989, breaking the trillion dollar mark in 2007. Nominal GDP per capita grew from $103.88 in 1962 to $5,438.24 in 1989, reaching the $20,000 milestone in 2007. The manufacturing sector grew from 14.3 percent of the GNP in 1962 to 30.3 percent in 1987. Commodity trade volume rose from US$480 million in 1962 to a projected US$127.9 billion in 1990. The ratio of domestic savings
Saving (money)
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan. Saving also includes reducing expenditures, such as recurring costs...
to GNP grew from 3.3 percent in 1962 to 35.8 percent in 1989.
The most significant factor in rapid industrialization was the adoption of an outward-looking strategy in the early 1960s. This strategy was particularly well suited to that time because of South Korea's poor natural resource endowment, low savings rate, and tiny domestic market. The strategy promoted economic growth through labor-intensive manufactured exports, in which South Korea could develop a competitive advantage. Government initiatives played an important role in this process. The inflow of foreign capital was greatly encouraged to supplement the shortage of domestic savings. These efforts enabled South Korea to achieve rapid growth in exports and subsequent increases in income.
By emphasizing the industrial sector, Seoul's export-oriented development strategy left the rural sector relatively underdeveloped. Except for mining, most industries were located in the urban areas of the northwest and southeast. Heavy industries generally were located in the south of the country. Factories in Seoul contributed over 25 percent of all manufacturing value-added in 1978; taken together with factories in surrounding Gyeonggi Province, factories in the Seoul area produced 46 percent of all manufacturing that year. Factories in Seoul and Gyeonggi Province employed 48 percent of the nation's 2.1 million factory workers. Increasing income disparity between the industrial and agricultural sectors became a serious problem by the 1970s and remained a problem, despite government efforts to raise farm income and improve rural living standards.
Shipbuilding
During the 1970s and 1980s, South Korea became a leading producer of ships, including oil supertankers, and oil-drilling platforms. The country's major shipbuilder was Hyundai, which built a 1-million-ton capacity drydock at Ulsan in the mid-1970s. Daewoo joined the shipbuilding industry in 1980 and finished a 1.2-million-ton facility at Okpo on Geoje Island, south of Busan, in mid-1981. The industry declined in the mid-1980s because of the oil glut and because of a worldwide recession. There was a sharp decrease in new orders in the late 1980s; new orders for 1988 totaled 3 million gross tons valued at US$1.9 billion, decreases from the previous year of 17.8 percent and 4.4 percent, respectively. These declines were caused by labor unrest, Seoul's unwillingness to provide financial assistance, and Tokyo's new low-interest export financing in support of Japanese shipbuilders. However, the South Korean shipping industry was expected to expand in the early 1990s because older ships in world fleets needed replacing. South Korea eventually became the world's dominant shipbuilder with a 50.6% share of the global shipbuilding market as of 2008. Notable Korean shipbuilders are Hyundai Heavy IndustriesHyundai Heavy Industries
Hyundai Heavy Industries Co., Ltd. is the world's largest shipbuilding company, headquartered in Ulsan, South Korea. The company is a subsidiary of Hyundai Heavy Industries Group...
, Samsung Heavy Industries
Samsung Heavy Industries
Samsung Heavy Industries or SHI is one of the largest shipbuilders in the world and one of the "Big Three" shipbuilders of South Korea...
, Daewoo Shipbuilding & Marine Engineering
Daewoo Shipbuilding & Marine Engineering
Daewoo Shipbuilding & Marine Engineering Co., Ltd ' is the second largest shipbuilder in the world and one of the "Big Three" shipbuilders of South Korea.On 21 February 2011, the A. P...
, and STX Offshore & Shipbuilding, the world's four largest shipbuilding companies. South Korea also owns STX Europe, which is Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
's largest shipbuilder.
Automobile
The automobile industry was one of South Korea's major growth and export industries in the 1980s. By the late 1980s, the capacity of the South Korean motor industry had increased more than fivefold since 1984; it exceeded 1 million units in 1988. Total investment in car and car-component manufacturing was over US$3 billion in 1989. Total production (including buses and trucks) for 1988 totaled 1.1 million units, a 10.6 percent increase over 1987, and grew to an estimated 1.3 million vehicles (predominantly passenger cars) in 1989. Almost 263,000 passenger cars were produced in 1985—a figure that grew to approximately 846,000 units in 1989. In 1988 automobile exports totaled 576,134 units, of which 480,119 units (83.3 percent) were sent to the United States. Throughout most of the late 1980s, much of the growth of South Korea's automobile industry was the result of a surge in exports; 1989 exports, however, declined 28.5 percent from 1988. This decline reflected sluggish car sales to the United States, especially at the less expensive end of the market, and labor strife at home. South Korea today has developed into one of world's largest automobile producers. Hyundai Kia Automotive GroupHyundai Kia Automotive Group
The Hyundai Kia Automotive Group is South Korea's largest automobile manufacturer, the second largest automaker in Asia after Toyota and the world's fourth largest automaker after Toyota, GM, and Volkswagen as of the end of 2010...
is Korea's largest automaker.
Mining
Most of the mineral deposits in the Korean Peninsula are located in North Korea, with the South only possessing an abundance of tungsten and graphite. Coal, iron ore, and molybdenum are found in South Korea, but not in large quantities and mining operations are on a small scale. Much of South Korea's minerals and ore are imported from other countries. Most South Korean coal is low-grade anthracite that is only used for heating homes and boilers.Construction
Construction has been an important South Korean export industry since the early 1960s and remains a critical source of foreign currency and invisible export earnings. By 1981 overseas construction projects, most of them in the Middle East, accounted for 60 percent of the work undertaken by South Korean construction companies. Contracts that year were valued at US$13.7 billion. In 1988, however, overseas construction contracts totaled only US$2.6 billion (orders from the Middle East were US$1.2 billion), a 1 percent increase over the previous year, while new orders for domestic construction projects totaled US$13.8 billion, an 8.8 percent increase over 1987. The result was that South Korean construction companies concentrated on the rapidly growing domestic market in the late 1980s. By 1989 there were signs of a revival of the overseas construction market—the Dong Ah Construction Company signed a US$5.3 billion contract with Libya for the second phase of Libya's Great Man-Made River ProjectGreat Manmade River
The Great Man-Made River is a network of pipes that supplies water from the Sahara Desert in Libya, from the Nubian Sandstone Aquifer System fossil aquifer. It is the world's largest irrigation project....
, which, when all five phases were completed, was projected to cost US$27 billion. South Korean construction companies signed over US$7 billion of overseas contracts in 1989. Korea's largest construction companies include Samsung C&T Corporation
Samsung C&T Corporation
Samsung C&T Corporation , established in 1938, is the origin of Samsung Group and currently consists of Engineering & Construction Group and Trading & Investment Group...
, who had built noteworthy constructs such as Petronas Towers, and Burj Khalifa
Armaments
Situated in the most heavily militarized region of the world, South Korea is an important manufacturer of armaments, both for domestic use and for export. During the 1960s, South Korea was largely dependent on the United States to supply its armed forces, but after the elaboration of President Richard M. Nixon's policy of Vietnamization in the early 1970s, South Korea began to manufacture many of its own weapons.Since the 1980s, South Korea, now in possession of more modern military technology than in previous generations, has actively began shifting its defense industry's areas of interest more from its previously homeland defense-oriented militarization efforts, to the promotion of military equipments and technology as mainstream products of exportation to boost its international trade. Some of its key military export projects include T-155 Firtina
T-155 Firtina
T-155 Fırtına is the Turkish variant of the K9 Thunder 155mm self-propelled howitzer by Samsung Techwin.Though essentially using the main systems of the K9 howitzer, including the South Korean designed 155/52 caliber gun system, majority of the chassis, automatic ammunition feeding mechanism, and...
self-propelled artillery for Turkey
Turkish Army
The Turkish Army or Turkish Land Forces is the main branch of the Turkish Armed Forces responsible for land-based military operations. The modern history of the army began with its formation after the collapse of the Ottoman Empire...
; K11 air-burst rifle for United Arab Emirates; Bangabandhu class guided-missile frigate for Bangladesh
Bangladesh Navy
The Bangladesh Navy is the naval arm of the Bangladesh Armed Forces. At present the navy is mostly limited to coastal patrolling, however it is implementing an ambitious procurement and expansion program to ensure the security of Bangladesh's maritime boundary...
; fleet tankers such as Sirius class
HMAS Sirius
HMAS Sirius is a commercial tanker purchased by the Royal Australian Navy and converted into a fleet replenishment vessel to replace . Launched in South Korea on 2004, and converted in Western Australia, Sirius was commissioned in 2006; three years before a purpose-built vessel would have, and at...
for the navies of Australia
Royal Australian Navy
The Royal Australian Navy is the naval branch of the Australian Defence Force. Following the Federation of Australia in 1901, the ships and resources of the separate colonial navies were integrated into a national force: the Commonwealth Naval Forces...
, New Zealand
Royal New Zealand Navy
The Royal New Zealand Navy is the maritime arm of the New Zealand Defence Force...
, and Venezuela; Makassar class amphibious assault ships for Indonesia
Indonesian Navy
The role of the Indonesian Navy is to patrol of Indonesia's immense coastline, to ensure safeguard the territorial waters and Exclusive Economic Zone , to protect Indonesia's maritime strategic interests, to protect the islands surrounded Indonesia and to defend against seaborne threats. The TNI...
; and KT-1 trainer for Turkey
Turkish Air Force
The Turkish Air Force is the aerial warfare service branch of the Turkish Armed Forces. It ranks 3rd in NATO in terms of fleet size behind the USAF and Royal Air Force with a current inventory of 798 aircraft .-Initial stages:...
and Indonesia
Indonesian Air Force
The Indonesian Air Force is the air force branch of the Indonesian National Armed Forces.The Indonesian Air Force has 34,930 personnel equipped with 110 combat aircraft including Su-27 and Su-30.-Before Indonesian independence :...
.
South Korea has also outsourced its defense industry to produce various core components of other countries' advanced military hardware. Those hardware include modern aircraft such as F-15K fighters and AH-64 attack helicopters which will be used by Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
and Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, whose airframes will be built by Korea Aerospace Industries in a joint-production deal with Boeing. In other major oursourcing and joint-production deals, South Korea has jointly produced the S-300 air defense system of Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
via Samsung Group
Samsung Group
The Samsung Group is a South Korean multinational conglomerate corporation headquartered in Samsung Town, Seoul, South Korea...
, and will facilitate the sales of Mistral class amphibious assault ships to Russia that will be produced by STX Corporation
STX Corporation
STX Corporation is a South Korean holding company engaged in the provision of trading services. Headquartered in Gyeongsangnamdo, South Korea, the company operates its business through two divisions: trade and ship maintenance. Its trade business division provides shipping and energy materials,...
. South Korea's defense exports were $1.03 billion in 2008 and $1.17 billion in 2009, and South Korea aims to increase the figure to $1.5 billion in 2010.
1990s and the Asian Financial Crisis
For the first half of the 1990s, the South Korean economy continued a stable and strong growth in both private consumption and GDP. Things changed quickly in 1997 with the Asian Financial crisis. After several other Asian currencies were attacked by speculators, the Korean Won started to heavily depreciate in October 1997. The problem was exacerbated by the problem of non-performing loans at many of Korea's merchant banks. By December 1997, the IMF had approved a USD $21 billion loan, that would be part of a USD $58.4 billion bailout plan. By January 1998, the government had shut down a third of Korea's merchant banks. Throughout 1998, Korea's economy would continue to shrink quarterly at an average rate of -6.65%. Korean chaebol Daewoo became a casualty of the crisis as it was dismantled by the government in 1999 due to debt problems. American company General MotorsGeneral Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
managed to purchase the motors division. Indian conglomerate Tata Group
Tata Group
Tata Group is an Indian multinational conglomerate company headquartered in Mumbai, Maharashtra, India. Tata Group is one of the largest companies in India by market capitalization and revenue. It has interests in communications and information technology, engineering, materials, services, energy,...
, purchased the trucks and heavy vehicles division of Daewoo.
Actions by the South Korean government and debt swaps by international lenders contained the country's financial problems. Much of South Korea's recovery from the Asian Financial Crisis can be attributed to labor adjustments (i.e. a dynamic and productive labor market with flexible wage rates) and alternative funding sources. By the first quarter of 1999, GDP growth had risen to 5.4%, and strong growth thereafter combined with deflationary pressure on the currency lead to a yearly growth of 10.5%. In December 1999, president Kim Dae-jung declared the currency crisis over.
2000s
After the bounce back from the crisis of the late nineties, the economy continued strong growth in 2000 with a GDP growth of 9.08%. Growth fell back to 3.8% in the early 2000s because of the slowing global economy, falling exports, and the perception that corporate and financial reforms had stalled. Thanks to industrialization GDP per hour worked (labor output) more than tripled from US$2.80 in 1963 to US$10.00 in 1989. More recently the economy stabilized and maintain a growth rate between 4-5% from 2003 onwards.Like most industrialized economies, Korea suffered significant setbacks during the late-2000s recession that began in 2007. Growth fell by 3.4% in the fourth quarter of 2008 from the previous quarter, the first negative quarterly growth in 10 years, with year on year quarterly growth continuing to be negative into 2009. Most sectors of the economy reported declines, with manufacturing dropping 25.6% as of January 2009, and consumer goods sales dropping 3.1%. Exports in autos and semiconductors, two critical pillars of the economy, shrank 55.9% and 46.9% respectively, while exports overall fell by a record 33.8% in January, and 18.3% in February 2009 year on year. As in the 1997 crisis, Korea's currency also experienced massive fluctuations, declining by 34% against the dollar. Annual growth in the economy slowed to 2.3% in 2008, and was expected to drop to as low as -4.5% by Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, but South Korea was able to limit the downturn to a near standstill at 0.2% in 2009.
Despite the global financial crisis, the South Korean economy, helped by timely stimulus measures and strong domestic consumption of products that compensated for a drop in export, was able to avoid a recession unlike most industrialized economies, posting positive economic growth for two consecutive years of the crisis. In 2010, South Korea made a strong economic rebound with a growth rate of 6.1%, signaling a return of the economy to pre-crisis levels. South Korea's export has recorded $424 billion in the first eleven months of the year 2010, already higher than its export in the whole year of 2008. The South Korean economy of the 21st century, as a Next Eleven
Next Eleven
The Next Eleven are eleven countries—Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam — identified by Goldman Sachs investment bank and Jim O'Neill as having a high potential of becoming, along with the BRICS, the world's largest...
economy, is expected to grow from 3.9% to 4.2% annually between 2011 and 2030, similar to growth rates of developing countries such as Brazil or Russia.
High-tech industries in the 1990s and 2000s
South Korea relies largely upon exports to fuel the growth of its economy, with finished products such as electronics, textiles, ships, automobiles, and steel being some of its most important exports. Although the import market has liberalized in recent years, the agricultural market has remained largely protectionist due to serious disparities in the price of domestic agricultural products such as rice with the international market. As of 2005, the price of rice in South Korea is about four times that of the average price of rice on the international market, and it was generally feared that opening the agricultural market would have disastrous effects upon the South Korean agricultural sector. In late 2004, however, an agreement was reached with the WTO in which South Korean rice imports will gradually increase from 4% to 8% of consumption by 2014. In addition, up to 30% of imported rice will be made available directly to consumers by 2010, where previously imported rice was only used for processed foods. Following 2014, the South Korean rice market will be fully opened.
Recent years
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
and tight fiscal measures were adopted. Growth of the money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
was reduced from the 30 percent level of the 1970s to 15 percent. Seoul even froze its budget for a short while. Government intervention in the economy was greatly reduced and policies on imports and foreign investment were liberalized to promote competition. To reduce the imbalance between rural and urban sectors, Seoul expanded investments in public projects, such as roads and communications facilities, while further promoting farm mechanization
Mechanization
Mechanization or mechanisation is providing human operators with machinery that assists them with the muscular requirements of work or displaces muscular work. In some fields, mechanization includes the use of hand tools...
.
These measures, coupled with significant improvements in the world economy, helped the South Korean economy regain its lost momentum in the late 1980s. South Korea achieved an average of 9.2 percent real growth between 1982 and 1987 and 12.5 percent between 1986 and 1988. The double digit inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
of the 1970s was brought under control. Wholesale
Wholesale
Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services...
price inflation averaged 2.1 percent per year from 1980 through 1988; consumer prices increased by an average of 4.7 percent annually. Seoul achieved its first significant surplus in its balance of payments in 1986 and recorded a US$7.7 billion and a US$11.4 billion surplus in 1987 and 1988 respectively. This development permitted South Korea to begin reducing its level of foreign debt. The trade surplus for 1989, however, was only US$4.6 billion dollars, and a small negative balance was projected for 1990.
In recent years, Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. South Korea bounced back from the 1997-98 Asian financial crisis with assistance from the International Monetary Fund (IMF), but its recovery was based largely on extensive financial reforms that restored stability to markets. These economic reforms, pushed by President Kim Dae-jung, helped Korea maintain one of Asia's few expanding economies, with growth rates of 10.8% in 1999 and 9.2% 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 have stalled. Led by industry and construction, growth in 2002 was 5.8%, despite anemic global growth. Restructuring of Korean conglomerates (chaebol
Chaebol
Chaebol refers to a South Korean form of business conglomerate. They are global multinationals owning numerous international enterprises. The term is often used in a context similar to that of the English word "conglomerate"...
s), bank privatization, and creating a more liberalized economy with a mechanism for bankrupt firms to exit the market remain Korea's most important unfinished reform tasks. Growth slowed again in 2004, but production expanded 5% in 2006, due to popular demand for key export products such as HDTVs and mobile phone
Mobile phone
A mobile phone is a device which can make and receive telephone calls over a radio link whilst moving around a wide geographic area. It does so by connecting to a cellular network provided by a mobile network operator...
s.
Tourism
Korean wave
The Korean Wave, also known as the Hallyu , refers to spread of South Korean culture around the world. The term was coined in China in mid-1999 by Beijing journalists surprised by the fast growing popularity of Korean entertainment and culture in China...
("hallyu").
Seoul
Seoul
Seoul , officially the Seoul Special City, is the capital and largest metropolis of South Korea. A megacity with a population of over 10 million, it is the largest city proper in the OECD developed world...
is the principal tourist destination for visitors; popular tourist destinations outside of Seoul include Seorak-san national park, the historic city of Gyeongju
Gyeongju
Gyeongju is a coastal city in the far southeastern corner of North Gyeongsang province in South Korea. It is the second largest city by area in the province after Andong, covering with a population of 269,343 people according to the 2008 census. Gyeongju is southeast of Seoul, and east of the...
and semi-tropical Jeju Island
Jeju-do
Jeju-do is the only special autonomous province of South Korea, situated on and coterminous with the country's largest island. Jeju-do lies in the Korea Strait, southwest of Jeollanam-do Province, of which it was a part before it became a separate province in 1946...
.
See also
- Four Asian Tigers
- List of South Korean regions by GDP
- Economy of North KoreaEconomy of North KoreaThe economy of North Korea is an industrialized and centrally planned economy.North Korea's economy remains one of the world's last centrally planned systems. The role of market allocation is sharply limited – mainly in the rural sector where some peasants sell produce from small private plots....
- List of banks in South Korea
- List of Korea-related topics
- List of South Korean companies
- Heavy-Chemical Industry DriveHeavy-Chemical Industry DriveThe Heavy-Chemical Industry Drive was an economic development plan enacted in the 1970s under the regime of South Korean dictator Park Chung Hee.-Background:...