Economy of South Korea

Republic of Korea
World economic rank	11.
currency	South Korean Won (KRW)
Trade organizations	G-20 , OECD , WTO , APEC
Key figures
Gross domestic product (GDP)	Nominal: $ 1.538 trillion (2017), PPP : $ 2.029 trillion (2017)
GDP per capita	$ 39,434 (PPP, estimate for 2017)
growth	3.1% (2017)
inflation rate	1.9% (estimate for 2017)
Employed	27.47 million (estimate for 2017)
Unemployment rate	3.8% (estimate for 2017)
Foreign trade
Export goods	Semiconductors, motor vehicles, computers, steel, ships, petrochemical products
Export partner	China 24.4% USA 10.1% Japan 7.1% (estimate for 2011)
Import goods	Machinery, electronic devices and equipment, petroleum, steel, plastic products
Import partner	China 16.5% Japan 13.0% USA 8.5% Saudi Arabia 7.1% Australia 5.0% (2011 estimate)
public finances
Public debt	$ 397.3 billion (2011 estimate)
Government revenue	$ 351.6 billion (2017)
Government spending	$ 338.0 billion (2017)

The South Korean economy is basically classified as a free market economy .

Even after the end of the Korean War , South Korea was one of the poorest agricultural countries in the world. It wasn't until 1962 that the country began developing its economy. Despite the poor starting conditions, South Korea showed high economic growth, which was partly due to the government's economic policy from the 1960s. South Korea is one of the tiger states that have caught up with the western industrialized countries. The main factor behind the economic turnaround is an outwardly oriented economic strategy that relied on exports as the drive for growth. According to the economic programs , the gross national income rose in the years 1962 to 2008 from 2.3 to 928.7 billion US dollars and the per capita income from 87 to approximately 19,231 US dollars.

Although the Asian crisis in the 1990s showed the weak points of the South Korean economy, it was nevertheless able to recover from the crisis surprisingly quickly. Today South Korea is one of the most important economies in the world and is a member of the G-20 and the OECD . The economy of South Korea is based on "technology products", shipbuilding and the automotive industry. The most important corporations in the country include Samsung , Hyundai and LG .

Economic history

Economy under Japanese rule

South Korean economic development can be traced back to the time when what is now South Korea was part of the Japanese colony . With the beginning of colonization in 1910 and before that, Japanese companies invested in the development of agriculture and industry there. The Korean economy should, among other things, support the expansion of the Japanese military in Asia. The distribution of the branches of industry was shaped by the geographical location: heavy industry was to be found in the mountainous north, rich in raw materials, and light industry and agriculture in the flat and fertile south. A rail network was set up for development and connection . Hydroelectric power stations in the north of the province served as electricity suppliers. After independence from Japan in 1945, the Korean peninsula had an advanced infrastructure and a modern economy.

World War II and Korean War

After the Second World War and Korea's independence from Japan, the Korean peninsula was divided into a Soviet and an American occupation zone along the 38th parallel. After the failure of an all-Korean government, two separate states emerged on the Korean peninsula, the Republic of Korea and the Democratic People's Republic of Korea . In addition to political consequences, this also had economic consequences. On the one hand, South Korea was Asia's rice chamber, on the other hand, the north was the energy supplier for the south. The break in trade contacts with Japan made the situation in South Korea even more difficult. At the same time there was a supply crisis in the south due to the ongoing shortage of petrol and electricity. While North Korea was built up through Soviet aid deliveries, economic stagnation continued to prevail in the south.

The Korean War (1950–1953) hit the economy hard and could only be sustained by the UN aid deliveries. The main cities and much of the infrastructure were destroyed by fighting, and numerous factories were damaged or dismantled.

Development phase under the military dictatorship

After the end of the war, the South Korean economy began to develop. Little by little , economic reforms aimed at promoting growth were introduced under the Park Chung-hee regime in the 1960s. After the political instability had been overcome, numerous South Korean companies were founded. In addition, the USA and especially Japan began to invest in South Korea. The reforms start primarily in the education system and also affected the rural population (Saemaul program). High savings and investment rates were also given high priority in the development. As a result, large corporations ( Jaebeols ) emerged. These include Samsung, Hyundai, LG, Daewoo , Kia , SK , Ssangyong , etc. These groups not only limited themselves to one core area, but also to several other areas, so that they were able to penetrate the market in many areas. This is how the country, which was known as one of the poorest agricultural countries in the world, managed to become a prosperous industrial nation in less than four decades. In reference to the river that flows through Seoul, the climb is referred to as the "miracle of the Hangang".

Rise to the world economy and the Asian crisis

In the 1980s and 1990s, the economy recorded an average annual growth of 8.6% and became the eleventh largest trading nation in the world. In less than two generations, the country established itself as one of the world's leading shipbuilders, electronics, semiconductor and car manufacturers. In 1996 Korea became the 29th member of the Organization for Economic Co-operation and Development (OECD).

The international financial markets have welcomed Korea's economic development positively, in particular the sustained high growth, moderate inflation, high savings reserves, low foreign debt and the substantial surpluses in the state budget. This positive outlook for the economy was overshadowed by the difficult situation of various corporations and financial institutions. This cast doubt on the Korean economy among some foreign investors, which in 1997 led to a serious liquidity crisis. This in turn resulted in worrying unemployment.

The 1997/1998 Asian crisis hit the economy hard. Due to high debt / equity ratios, massive over-indebtedness and neglect in the financial sector, the economy was shaken. To overcome the Asian crisis, South Korea received help from the IMF , but under the condition that it reformed and strengthened its financial system. The large corporations sold off inefficient areas and began to concentrate on the respective core areas. Samsung discovered the technology division and chip production for itself and was able to gradually increase its operating profit and market share. Hyundai focused again on automobile production and expanded its market share outside of the Korean market. In 2001, South Korea repaid its debts to the IMF in full.

From 2000

South Korea survived the economic crisis of 2008/2009 well. Despite weak economic data from Europe and overseas, economic growth continued due to increased demand in the People's Republic of China and other emerging countries .

Economic structure

Agriculture

Rice blossom in Sunchang

The share of South Korean agriculture in GDP is around 3.2%. However, the agricultural sector still has a high level of employment, around 10%. The main agricultural product is rice, which is grown in 80% of all fields. In addition, soy, wheat, potatoes and Jejudo fruit are produced. Although most of the fields have to be irrigated, rice cultivation has a high cultural value, similar to that in Japan. But falling food prices are creating tension between the population and the government. As in other countries, the trend can be observed that the number of large farms in agriculture is growing, while the old family farms are becoming increasingly rare. This structural change is likely to have far-reaching consequences for South Korean society.

In addition to agriculture, fishing also plays an important role. It employs around 180,000 people. Since the coastal waters have largely been fished empty, the government has introduced regulations to curb fish deaths. Because of the rich fishing grounds on the inner-Korean sea border, there are regular disputes between fishermen from North and South Korea.

Industry

Automobile plant of Hyundai in Ulsan

Industry plays an important role in South Korea and employs around 20% of all workers. It contributes 35% to the gross domestic product. South Korea has recently specialized in the manufacture of technology products and competes on an equal footing with other international manufacturers. For example, in the production of flat screens , chip production , computers and ships, South Korean products have achieved a dominant position on the market.

South Korea is the largest shipbuilding nation in the world and ranks first in terms of semiconductor and display production. The country ranks second in the manufacture of mobile phones. In terms of the steel and automotive industries, the economy was in fifth place.

The South Korean shipbuilding industry has maintained its position as the world's largest producer of ships since the beginning of the 21st century. In 2005 it covered 40% of global demand.

With almost 11% of the global market share, the semiconductor industry leads the way, especially in the area of ​​flash memory and DRAM (Dynamic Random Access Memory). The two largest semiconductor producers, Samsung Electronics and Hynix, ranked first two worldwide in 2008. Together the two companies made up 50% of the world market.

As one of the larger automobile manufacturers, the country produces over 3.8 million vehicles annually. Since South Korea first started exporting cars in 1976, the automotive industry has developed at a rapid pace. As the demand for Korean automobiles increases worldwide, leading manufacturers have started to set up manufacturing facilities abroad in recent years.

In retrospect, Korea’s industrial policy has changed course significantly in every decade. This made it possible to lead the economy into an increasingly positive and successful future. In the 1960s, Korea began to promote exports by enacting appropriate laws and regulations and drawing up export-oriented development plans. In the 1970s, the chemical industry was at the center of Korean industrial policy. In the 1980s there was an industrial restructuring with the aim of promoting small and medium-sized enterprises. While the industrial sector mostly consisted of large corporations in the 1980s, the supplier market has diversified in recent years.

service

Financial center in Seoul

Like many other highly developed industrialized countries, South Korea has succeeded in joining the service society. Today the service represents about 62% of the total South Korean gross domestic product and employs 63% of the workforce. The tourism industry in particular has been on a steady upswing since the early 1970s. The 1988 Summer Olympics in Seoul and the 2002 World Cup brought high profits to the economy.

Energy industry

The energy industry and energy policy are extremely important to South Korea, as it is a country poor in natural resources. South Korea therefore obtains all of its oil requirements from abroad.

Economic policy

South Korean economic policy began with the land reform from 1945 to 1949, which expropriated the Japanese landowners and the land was divided among the local farmers. This led to a more even distribution of income in the countryside. After the Korean War, the government began to exploit South Korea's comparative trade advantages. The export policy was characterized by an active trade policy. The industry has been strengthened through tax breaks and lending in several five-year plans, with particular encouragement for competitive companies. After American support declined, South Korea took out foreign loans and was able to continue investing in industry.

In South Korea, the strong links between politics and business are evident. The strong role of Jaebeol was particularly pronounced in the 1980s and 1990s and exerted a significant influence on political decisions. In the course of the Asian crisis, the government recognized the disadvantage of the conglomerates, which were significantly weakened by the downturn due to too many branches. Numerous reforms were carried out to promote medium-sized companies and to diversify the offer on the market. However, the large conglomerates continue to hold important key positions within the South Korean economy.

The new goal of the economy is to promote the country's engines of growth and improve its industrial structure. In order to achieve these goals, the economy is striving to further develop its component and building materials sector as well as the knowledge-based service sector.

Economic data

Development of the South Korean GDP ( PPP ) from 1911 to 2008

overview

Korea's gross domestic product is US $ 1,222 billion (as of 2014). This makes South Korea the fifteenth largest economy in the world. South Korea is the market leader in some areas of technology. In world foreign trade, South Korea is now one of the ten economies with the highest exports, with total exports of around 194 billion US dollars. South Korea is the third largest export nation in Asia. The gross domestic product per capita (33,189 US dollars, adjusted for purchasing power ) corresponds to the EU average (30,494 US dollars, PPP).

The foreign trade data (2003) show the following values:

• Export volume: 194 billion US dollars
• Import volume: $ 179 billion

The largest trading partners are:

• Export: PR China (20%), USA (20%), EU, Japan, Taiwan
• Import: Japan (20%), USA (14%), China, EU, Saudi Arabia

Economic indicators

The key economic indicators of gross domestic product , inflation, budget balance and foreign trade have developed as follows in recent years:

Change in gross domestic product (GDP)
in% compared to the previous year (real)

year	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016
Change in% vs. Previous year	3.9	5.2	5.5	2.8	0.7	6.5	3.7	2.3	2.9	3.3	2.8	2.8

Korea's GDP according to the World Bank

Development of GDP (nominal) absolute (in billion US $)				Development of GDP (nominal) per inhabitant (in thousand US $)
year	2014	2015	2016	year	2014	2015	2016
	1,411	1,383	1,411		27.8	27.1	27.5

Inflation rate according to the World Bank

year	2014	2015	2016
Development of the inflation rate in% vs. the previous year	1.3	0.7	1.0

Budget balances according to gtai

year	2009	2010	2011
Development of the budget balance in% of GDP	−1.1	0.0	0.8

Development of foreign trade
(in billion US $ and its change compared to the previous year in%)

	2014		2015		2016
	Billion US $	% yoy	Billion US $	% yoy	Billion US $	% year-on-year
import	525.6	1.9	436.5	−16.9	406.2	−6.9
export		2.4	526.8	−8.1	495.4	−5.9
balance	47.5		90.3		89.2

Main trading partner of South Korea in 2016 according to GTAI

Export (in percent) to		Import (in percent) of
People's Republic of China	25.1	People's Republic of China	21.4
United States	13.5	Japan	11.7
Hong Kong	6.6	United States	10.7
Vietnam	6.6	Germany	4.7
Japan	4.9	Taiwan	4.0
Singapore	2.5	Saudi Arabia	3.9
Taiwan	2.5	Australia	3.7
other countries	38.3	other countries	39.9

The OECD forecast economic growth of 4.4% for South Korea in 2010. In the final quarter of 2008 it was -5.6% due to the global economic crisis. In 2009 the value recovered to 0.2%.

credit-worthiness

The rating agencies generally rate the republic's creditworthiness as positive.

Here is a small overview of reviews:

• Standard & Poor’s :
  AA- (domestic)
  A + (international)
  AA (T&C assessment)
  Outlook: stable
• Moody’s :
  Aa3
  Outlook: Stable
• Fitch :
  AA-
  Outlook: Stable

international economic Relations

International economic relations, especially exports, are one of the central points of South Korea's foreign policy. The country has been a member of the WTO since 1995 . Exports have grown rapidly since the 1970s. While they represented around 10% of GDP in the early 1970s, that percentage was 37.7 in 2001. The most important export goods are electronics, vehicles, consumer electronics, steel, ships, products of the chemical industry, textiles and shoes as well as fish. The most important sales markets for South Korean goods are China and the USA , each with more than 20%. This is followed by the EU , Japan and Taiwan . The most important import goods are crude oil, food, machines and vehicles, chemicals and metals. More than 20% of imports come from Japan, around 14% from the USA, followed by China, the EU and Saudi Arabia , from which around a third of all oil imports come.

Total exports in 2003 were approximately $ 194 billion and imports were $ 179 billion. This resulted in a trade surplus of 15 billion US dollars, at the same time there was a balance of payments surplus of more than 12 billion dollars, or almost 5% of GDP. South Korea has about $ 130 billion in debt abroad.

Foreign firms invested nearly $ 85 billion in South Korea in 2002. The largest investor with around 50% is the USA, followed by Japan, the Netherlands, Germany and Hong Kong . While American investments are focused on the service sector, Japanese companies are largely investing in industrial companies. Foreign investment is hampered by concerns about corruption , political instability and unfair trade practices.

State budget

The state budget in 2009 comprised expenditures equivalent to US $ 227.2 billion , which was offset by income equivalent to US $ 191.5 billion. This results in a budget deficit of 4.4% of GDP .
The national debt in 2009 was $ 226.7 billion, or 28.0% of GDP.

In 2006, the share of government expenditure (as a percentage of GDP) was as follows:

• Health : 6.4%
• Education : 4.6% (2004)
• Military : 2.7%

capital

According to a study by Bank Credit Suisse from 2017, South Korea ranked 10th worldwide in terms of total national assets . Total real estate, stocks, and cash holdings totaled $ 6,586 billion. The wealth per adult person is 160,609 dollars on average and 67,934 dollars in median (in Germany: 203,946 and 47,091 dollars, respectively). In terms of wealth per inhabitant, South Korea is among the top 20 countries worldwide. Overall, 38.1% of South Koreans' total wealth was financial wealth and 61.9% was non-financial wealth. The Gini coefficient for wealth distribution was 70 in 2017, which indicates relatively moderate wealth inequality. The top 10% of the Korean population owned 47.6% of the property and the top 1% owned 17.5% of the property. The proportion of Koreans with a net worth over a million dollars is estimated at 1.7% of the population.

labour market

The labor markets in the Republic of Korea are largely flexible. The trade unions are relatively weak compared to other countries. The unions in the public service have not yet been recognized by the state. The major trade unions in the country are the Federation of Korean Trade Unions and the Confederation of Trade Unions. The situation of the trade unions and the situation of workers has been repeatedly criticized by human rights organizations such as Amnesty International. Migrant workers from various Southeast Asian countries pose a serious problem. Amnesty International puts the number of illegal migrant workers at 220,000.

The working conditions in Korea are generally very tough compared to other OECD countries. The average number of hours worked per year in Korea is highest in the OECD.

The level of education in Korea is very high compared to other OECD countries. The Pisa study found that the Republic of Korea can score high in many areas (math). Some of the world's best universities are located in the Republic of Korea. The most important educational institutions include the so-called SKY universities ( Seoul National University , Korea University and Yonsei University ), as well as the KAIST in Daejeon .

unemployment

The South Korean labor market in 2004 comprised around 22.8 million people. At the same time, the unemployment rate was around 3.5%. Unemployment in South Korea is at a comparatively low level and is around 3.7% (2010). However, the high level of youth unemployment is problematic. In January 2011 the unemployment rate was 3.8%.

minimum wage

South Korea has a minimum wage that is adjusted annually. In 2016 this is 6,030 won per hour. The Department of Health and Welfare estimates that approximately 1.4 million people are below the poverty line and another 3.2 million live in potential extreme poverty.

Unions

In 2003 there were more than 6,500 trade unions in South Korea , representing about 11% of the workforce. Most of these unions exist at the company level, some of them are united at the national level in two national federations. In the same year there were 319 strikes in which a total of 1.3 million working days were lost. The government has been repeatedly criticized for failing to recognize unions in the public sector and for arresting unionists who engage in strikes. According to OECD data from 2004, Korean workers work 2,390 hours per year. That is 400 hours more than the second largest number of hours (namely in Poland) and 34% more than in the United States. According to the South Korean government, the number of hours worked decreased slightly to 2,316 in 2007.

Women

About half of South Korean women of working age are actively involved. In January 2010 the number of working women was given as 9.4 million. The number of unemployed women is around 495,000.

Individual evidence

1. ^ Exports Partners of South Korea . CIA World Factbook . 2011. Retrieved June 22, 2013.
2. ↑ ^{a b c d e} The World Factbook .
3. ↑ ^{a b c d e f} economic growth . In: Korea Net . KOCIS , archived from the original on September 2, 2014 ; accessed on May 24, 2019 (English, original website no longer available).  
4. ↑ https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html
5. ↑ GDP per capita growth (annual%) | Data. Retrieved July 10, 2017 (American English). 
6. ↑ ^{a b c d} Compact economic data: Korea (Rep.). (PDF; 213 kB) Germany Trade & Invest , November 2015, archived from the original on February 7, 2016 ; accessed on March 27, 2018 (English, original website no longer available).  
7. ↑ GDP per capita (current US $) | Data. Retrieved July 10, 2017 (American English). 
8. ↑ Germany Trade and Invest GmbH: GTAI - Compact economic data. Retrieved July 26, 2017 . 
9. ↑ Colin Dürkop, Sebastian Ratzer: “South Korea and the G-20. From Asia's poor house to an economic wonder nation ”. KAS-Auslandsinformationen 5/2010, pp. 72–73.
10. ^ Sovereigns rating list . Standard & Poor's. Retrieved May 26, 2011.
11. ↑ ^{a b c} How Fitch, Moody's and S&P rate each country's credit rating . In: The Guardian , April 15, 2011. Retrieved May 28, 2011. 
12. ^ The Fischer World Almanac 2010: Figures Data Facts, Fischer, Frankfurt, September 8, 2009, ISBN 978-3-596-72910-4 .
13. ↑ Global Wealth Report 2017 . In: Credit Suisse . ( credit-suisse.com [accessed January 1, 2018]).
14. Jump up ↑ Pisa Front Runner: The Secret of Asia's Math Geniuses . In: Spiegel Online from December 3, 2013.
15. ↑ Ewald Walterskirchen (2006): Working hours in an international comparison (PDF file). Retrieved December 26, 2013.
16. ↑ South Korea: trade surplus shrinks, unemployment falls. EMFis - Trading Group GmbH & Co. KG, February 16, 2011, archived from the original on April 3, 2015 ; accessed on November 24, 2015 (English, original website no longer available).  
17. ^ The Korea Herald: Korea moves to shorten work hours , accessed February 16, 2010.
18. ↑ The Korea Times: No. of Jobless Women Hits Decade High , accessed February 16, 2010.