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South Korea: Economic Overview
Economic history and projections:
The Gross Domestic Product (GDP) in South Korea expanded 0.80 percent in the first quarter of
2013 over the previous quarter. GDP Growth Rate in South Korea is reported by the Bank of
Korea. Historically, from 1970 until 2013, South Korea GDP Growth Rate averaged 1.73
Percent reaching an all time high of 6.80 Percent in March of 1988 and a record low of -7
Percent in March of 1998. South Korea relies mainly on exports for their economy. After the
Asian financial crisis in late 90’s, South Korea’s economy grew at an average 1.1 percent on a
quarter over quarter basis, mainly because of exports, which is half of its GDP. South Korea is
the world's leading producer of displays and memory semiconductors and the second largest
shipbuilding producer. Yet, the high reliance on exports together with a limited domestic market
and a rapidly aging population are the main threats to the future growth.
Economic Indicators:
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GDP real growth rate: 2.7%
GDP -per capita (PPP): $32,400
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population below poverty line: 15%
Labor force: 25.18 million
unemployment rate: 3.8%
Inflation rate: 2.2%
Budget:
• revenues: $271.9 billion
• expenditures: $249.2 billion
GDP - composition by sector:
• agriculture: 2.7%
• Industry: 39.8%
• Services 57.5%
Agriculture:
• rice, root crops, barely, vegetables, fruit; cattle, pigs, chicken, milk, eggs;
fish
Industry
• electronics, telecommunications, automobile production, chemicals, ship
building, steel
Economic Structure:
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The chaebols, Korean conglomerates such as Hyundai, Samsung and
Daewoo and LG3, play an important role in the Korean economy. In 1995,
the four companies had produced 9% of the country’s GDP.1 Although
economic reforms have curtailed some of their dominance, these
multinationals still play a powerful role in the Korean economy.
Like Japan, South Korea also has small businesses which seem to
complement the large corporations. Small and medium enterprises,
(SMEs) employ more than 80% of the work force.2
South Korea’s main trading partner is China which is the recipient of
21.7% of Korean exports and accounts for over 17.7% of its imports. The
second largest export destination is the United States, which accounts for
11.0% of the total exports, and Japan is the second largest import
source, which account for 14.0% of the total imports.3
Political Considerations:
“Economic Structure.” The Economist.com - Country Briefings: South Korea
<http://www.economist.com/countries/SouthKorea/profile.cfm?folder=Profile%2DEconomic%20Structure>
2
“Asian Development Outlook 2006: Republic of Korea.”
3
“Republic of Korea – Country Fact Sheet.” Australian Government Department of Foreign Affairs and Trade.
< http://www.dfat.gov.au/geo/fs/rkor.pdf >
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President - Park Geun-hye since 2013
Prime Minister - Jung Hong-won
Capital city - Seoul
South Korea is a republic, where a democratically elected President
serves as the head of state. The Prime Minister, serving as the head of
the government, is appointed by the President with the consent of the
National Assembly.
The National Assembly is the unicameral legislative body and its members
are elected by the citizens.
The government plays an active role in promoting trade and economic
growth. In 2001, then President Park Chung-hee led an export-oriented
industrialization drive which led to exports which totaled 37.7% of its
GDP.4
Corporate income tax rates range from 13% to 25%. Companies are also
subject to a residence surtax applied at a rate of 10% of corporate tax
liability. Personal income tax rates range from 8% to 35%. A residence
surcharge of 10% of income-tax liability is also applied. The value-added
tax (VAT) rate is 10%.5
The Korean government has released a budget of 291.8 trillion won in
2010, a 2.5% increase from 2009.6
Attractions:
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Development of Electronics and Automobiles: With major
multinational corporations such as Samsung and Hyundai, the South
Korean economy is geared towards exporting automobiles in electronics.
Its strong export growth demonstrates that Korean industries are making
inroads into markets with newly forming classes such as China, India and
Mexico.7
Openness to Trade: South Korea’s economy is dependent on foreign
trade. 52% of South Koreas GDP is from exports. South Korea’s import
commodities are machinery, electronics and electronic equipment, oil,
steel, transport equipment, organic chemicals and plastic. It trades
mostly with China, the U.S. and Japan.
Under Creative Commons License: Attribution Share Alike
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Restructuring of the Financial Sector: Standard and Poor’s has rated
Korea’s commercial banks as “stable,” and has pointed to potential for an
“Economic Structure.” The Economist.com - Country Briefings: South Korea
“Fact Sheet.” The Economist.com - Country Briefings: South Korea
http://www.economist.com/countries/SouthKorea/profile.cfm?folder=Profile-FactSheet
6
“2009-2013 and 2010 Budget Plan.” Republic of Korea Ministry of Strategy and Finance
<http://english.mosf.go.kr/public/direction_view.php?sect=laws_policies&pmode=&cat=&sn=6713&page=1&SK=ALL&SW= >
7
“Asian Development Outlook 2006: Republic of Korea.”
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5
improvement in the ratings. In addition to restructuring and re-privatizing
banks, it has also promoted greater competition and opened its bank to
foreign ownership. In 2004, Citigroup became the first major global bank
to complete the purchase of a Korean bank.8
Troubled Spots:
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Strong Competition: Although Korean boasts a strong automotive and
electronic sector, it must compete with similar goods coming from Japan.
In addition, Korean SMEs which supply parts to large Korean corporations
must also compete with cheap imports coming from China.
Need for Further Corporate Restructuring: Although South Korea has
made progress in restructuring the chaebols, there are still concerns over
the cooperation between the subsidiaries.In addition to their problems
restructuring chaebols, Korea has been reluctant to push for efforts to
restructure SMEs. Government support of SMEs, including guarantees for
SME credit, has prevented the creation of an efficient market mechanism
which would eliminate unproductive firms.
U.S., South Korea Relations
• Hosted the 2010 G-20 Summit, 2011 Fourth High-Level Forum on Aid
Effectiveness, and the 2012 Nuclear Security Summit.
• Committed member of Proliferation Security Initiative (PSI) and the Global
Initiative to Combat Nuclear Terrorism (GICNT).
• A lot of South Korean’s come to the U.S. as foreign exchange students.
• South Korea is the U.S.’s 7th largest trading partner
http://www.state.gov/r/pa/ei/bgn/2800.htm
South Korea and North Korea Relations
On Monday April 15 2013, North Korea threatened South Korea that it would
give no notice of when they will attack with nuclear weapons. They also cut
off trade with South Korea. Then in June 2013 they were going to hold
diplomatic meetings to resolve the issues. However, on Tuesday June 11,
North Korea scrapped the meetings. They couldn’t agree on who would
delegate the meetings.
http://www.foxnews.com/world/2013/06/11/north-korea-south-korea-talksscrapped-over-stalemate/
http://www.cnn.com/2013/04/15/world/asia/north-korea-ultimatum
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“Korea Country Brief.”
Acknowledgements:
Research: Casey Shannon, Research Assistant, under the supervision and coordination of
Dr. Gerard Janco, President, Eurasia Center/Eurasian Business Coalition.