South Korea

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South Korea

EXECUTIVE SUMMARY

INTRODUCTION

South Korea is a country with a population of about 48.6million people (2008) with an annual population growth of 0.31% (2008). The country's government is a republic with powers shared between the president, the legislature and the courts. In terms of trade, South Korea's exports include:

* electronic products (semiconductors, cellular phones and equipment, computers),

* automobiles,

* machinery and equipment,

* steel,

* ships,

* petrochemicals

Imports

* crude oil,

* food,

* machinery and transportation equipment,

* chemicals and chemical products,

* base metals and articles

The major markets for South Korean exports are China, U.S, Japan, and Hong Kong and its suppliers are China, Japan, U.S., Saudi Arabia, and U.A.E. Korea's population is one of the most ethnically and linguistically homogenous in the world. Except for a small Chinese community (about 20,000), virtually all Koreans share a common cultural and linguistic heritage. With 48.6 million people, South Korea has one of the world's highest population densities. Major population centers are located in the northwest, southeast, and in the plains south of the Seoul area. Half of the population actively practices religion. Among this group, Christianity (49%) and Buddhism (47%) comprise Korea's two dominant religions.

ECONOMIC ENVIRONMENT

Until the early 1980s, South Korea was governed by a series of dictatorships, both civilian and military, under which political dissent led to imprisonment. However, at this point, the country's political leaders, with their powerbase in the monopolistic Democratic Justice Party, realized that some relaxation of the existing tight political control was necessary. The question, as ever, was how far to go and how fast. In 1981, martial law was lifted. Within five years, a powerful parliamentary opposition had emerged in the form of the New Korea Democratic Party (NKDP), led by the veteran dissident Kim Dae-Jung. The new party complemented the existing extra-parliamentary opposition, which was rooted in the student and trade union movements. Unlike the West where student protest is generally dismissed or ignored by the wider population, South Korea's student movement, the Chondaehyop, has been widely supported by ordinary people who felt it could articulate their complaints. The burgeoning labor movement, which had emerged with the country's rapid industrialization, was also making its presence felt. It was not until December 1997 that Kim Dae-Jung, the perennial opposition leader, won the presidential poll. Kim Dae-Jung's most serious immediate problem upon taking office was the fall-out from the Asian currency crisis. This caused a sharp recession and eventually required a substantial and humiliating bail-out by the IMF. The Government was obliged to promise to reform South Korea's creaking financial system and end the incestuous relationship between Government and the chaebol industrial giants who control much of the economy.

The 1997 crisis, though triggered by external events, was largely a product of internal problems, relating at base, to a weak system of corporate governance, a dysfunctional financial system, and poor labor relations (Noland 2000, Krueger and Yoo 2001). South Korea has made considerable progress (at significant cost) since then. In the financial sector, prudential regulation has been strengthened through the creation of the Financial Supervisory Commission and the introduction of new regulatory practices, approaches, and standards. The government has been forced to inject 155 trillion won (roughly 30 percent of national income) into banks and other financial institutions, while shutting down 498 non-viable financial institutions, reducing the number of commercial banks from 33 to 11, with a consequence reduction of financial sector employment of roughly one-third. In the corporate sector, South Korea has experienced the largest corporate bankruptcy in history (Daewoo) and has come close to another (Hyundai). South Korean chaebol have embarked on a process of restructuring encouraged by market forces, political prodding, and legal changes, but to date, their actions have consisted largely of disengaging from uneconomic activities rather than implementing forward-looking strategic plans to enhance shareholder value. In the labor market, the government has greatly broadened and strengthened the social safety net, but employers still face militant behavior on the part of unions. Given the state's prominent role in the economy, labor unrest has been an impediment to public sector reform, and has inhibited the process of denationalization or privatization of public corporations. Labor market problems have also deterred foreign investment. Nevertheless, South Korea has arguably made better progress on economic reform in the last four years than the other heavily affected Asian crisis countries, or Japan for that matter. Due to nationalizations of failing banks, at the height of the financial crisis in 1998, the state directly owned more than three-quarters of the banking system, and it now appears to be reluctant to give up control. In September 1999, significant foreign competition was introduced into the South Korean financial services sector, when, after months of contentious negotiations, the government sold the failed Korea First Bank to Newbridge Capital for $415 million, after indemnifying the firm against debts hidden by opaque, and at times, illegal, accounting practices. The government was severely criticized for the indemnification.

The Promise of the New Economy

The implicit costs of this misallocation of the nation's wealth are obvious. It is apparent that the world is in the midst of a technological revolution that is having a profound impact on productivity, organizational relationships within and among firms, and the distribution of income and wealth. South Korea has adopted information technology faster than any other economy in Asia. More than one-third of the population regularly uses the internet, a higher figure than for other high-income economies such as Japan, Taiwan, or Hong Kong, and average monthly usage is 18.1 hours, the highest in the world. South Korea boasts the highest broadband penetration rate in the world; double that of Canada, its closest rival. More than three million South Korean homes have high-speed internet access, double the number in Japan. Internet access costs only one-third as much as in Japan, and South Korea websites are generally more sophisticated than those in Japan. In the stock market, nearly two-thirds of all share transactions by value, and a third by number, are now conducted on-line, again, the highest in the world. South Korean firms arguably lead the world in third generation mobile telephony.

The advent of information technology is changing the structure of the South Korean economy. Given the rigidities and uncertain futures of the chaebol, there has been an upsurge in start-up activity and initial public offerings in the stock market. In 2000, according to a survey jointly conducted by the London Business School and Babson College, nine percent of adults in South Korea were owning or managing new firms. These new firms are changing South Korean corporate culture as well. In contrast to the secrecy that has characterized the chaebol, the managements of the publicly-listed firms hold regular meetings with institutional investors. In contrast to the strict seniority-based formulas that characterize chaebol renumeration practices, firms such as Locus, a supplier of communications and internet services, have introduced incentive-based pay and stock option schemes. The developments are partly due to generational change, as the ranks of South Korean corporate management are swelled by Western-educated business school graduates.

Economic systems adopted by South Korea

South Korea opted for a free-enterprise economy at the time of independence and has since sought to consolidate it with a great deal of success. The mainly agrarian nation began to industrialize in the 1950s, after the Korean War (1950-1953). It's relatively insignificant industries mainly served its domestic market until the early 1960s, when the South Korean government encouraged massive industrialization. Unlike many developing countries, South Korea chose an export-led industrialization strategy to produce labor-intensive products that could be produced more cheaply than in North America and Western Europe and therefore competitive and exportable to those markets. Initially, the emphasis was on light industry products such as fabric and clothing, later supplemented by assembly-line production of electronic products like radios or black-and-white television sets. By the late 1960s, South Korea became a major producer of telecommunication devices and computer parts.

The political economic system that existed during the Park regime was often characterized as a state-led economy or developmentalism. Although it was basically a private market economy it differed from the Anglo-American version of a free market economy in that the state held a commanding position in resource allocation through its control over credit allocation and thus over the decisions of large family-owned enterprises called the chaebol. This was the system of political economy that the Park regime used effectively to promote rapid export expansion and economic growth. This state-led system of political economy resembled, as remarked by a number of observers of the Korean economy, the system that was used in Japan during the post-World War II period to achieve rapid economic growth and catch up with the advanced economies of the West.

SECTOR BEING STUDIED AND POLICIES

ISSUES

Data

Year

GDP at constant prices

National currency

GDP % change

2000

694,628.10

8.486

2001

722,228.90

3.973

2002

773,868.40

7.15

2003

795,558.20

2.803

2004

832,305.30

4.619

2005

865,240.90

3.957

2006

910,048.90

5.179

2007

956,514.50

5.106

2008

977,786.50

2.224

2009

968,135.36

-0.987

2010

1,002,527.75

3.552

1,002,527.75

Data discussions

We collected South Korea's yearly GDP and GDP per capita from the year 2000 to 2010. The GDP is recorded in South Korean national currency which is the Korean Won (KRW) and as from the data we found that the South Korean GDP has been increasing from 2000 to 2008. This means that South Korea was experiencing economic growth. There may be many reasons to why a country may experience growth but in this case it is because of a system of close government and business ties, including directed credit and import restrictions, and 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 1997-98 exposed longstanding weaknesses in South Korea's development including high debt/equity ratios and massive short-term foreign borrowing. But after the crisis, South Korea adopted numerous economic reforms including greater openness to foreign investment and imports. This was meant to allow foreign countries to invest in the local market as a way of bringing foreign income and with the global economic downturn in late 2008, South Korean GDP growth slowed to 2.2% in 2008 and declined 0.987% in 2009. In the third quarter of 2009, the economy began to recover, in large part due to export growth, low interest rates, and an expansionary fiscal policy by the South Korean government.

Korea (Republic of)

The Human Development Index

The HDI provides a composite measure of three dimensions of human development: living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and gross enrolment in education) and having a decent standard of living (measured by purchasing power parity, PPP, income). The index is not in any sense a comprehensive measure of human development. It does not, for example, include important indicators such as gender or income inequality nor more difficult to measure concepts like respect for human rights and political freedoms. What it does provide is a broadened prism for viewing human progress and the complex relationship between income and well-being.

Between 1980 and 2007 Korea (Republic of)'s HDI rose by 0.97% annually from 0.722 to 0.937 today. HDI scores in all regions have increased progressively over the years (Figure 1) although all have experienced periods of slower growth or even reversals.

The 2007 HDI highlights the very large gaps in well-being and life chances that continue to divide our increasingly interconnected world. The HDI for Korea (Republic of) is 0.937, which gives the country a rank of 26thout of 182 countries with data (Table 1).

Table 1: Korea (Republic of)'s human development index 2007

HDI value

Life expectancy at birth
(years)

Combined gross enrolment ratio
(%)

GDP per capita
(PPP US$)

1. Norway (0.971)

1. Japan (82.7)

1. Australia (114.2)

1. Liechtenstein (85,382)

24. Hong Kong, China (SAR) (0.944)

23. Luxembourg (79.4)

7. Canada (99.3)

33. Slovenia (26,753)

25. Greece (0.942)

24. United Kingdom (79.3)

8. Norway (98.6)

34. Israel (26,315)

26. Korea (Republic of) (0.937)

25. Korea (Republic of) (79.2)

9. Korea (Republic of) (98.5)

35. Korea (Republic of) (24,801)

27. Israel (0.935)

26. United States (79.1)

10. Ireland (97.6)

36. Cyprus (24,789)

28. Andorra (0.934)

27. Greece (79.1)

11. Netherlands (97.5)

37. Czech Republic (24,144)

182. Niger (0.340)

176. Afghanistan (43.6)

177. Djibouti (25.5)

181. Congo (Democratic Republic of the) (298)

Building the capabilities of women

The gender-related development index (GDI), introduced in Human Development Report 1995, measures achievements in the same dimensions using the same indicators as the HDI but captures inequalities in achievement between women and men. It is simply the HDI adjusted downward for gender inequality. The greater the gender disparity in basic human development, the lower is a country's GDI relative to its HDI.

Korea (Republic of)'s GDI value, 0.926 should be compared to its HDI value of 0.937. Its GDI value is 98.8% of its HDI value. Out of the 155 countries with both HDI and GDI values, 97 countries have a better ratio than Korea (Republic of)'s.

Table 2 shows how Korea (Republic of)'s ratio of GDI to HDI compares to other countries, and also shows its values for selected underlying indicators in the calculation of the GDI.

Table 2: The GDI compared to the HDI - a measure of gender disparity

GDI as % of HDI

Life expectancy at birth(years)2004

Combined primary, secondary and tertiary gross enrolment ratio2004

Female as % male

Female as % male

1. Mongolia (100.0%)

1. Russian Federation (121.7%)

1. Cuba (121.0%)

96. Guatemala (98.9%)

44. Angola (108.9%)

146. Turkey (87.6%)

97. Sao Tome and Principe (98.8%)

45. Nicaragua (108.8%)

147. Morocco (86.1%)

98. Korea (Republic of) (98.8%)

46. Korea (Republic of) (108.8%)

148. Korea (Republic of) (85.7%)

99. Congo (98.8%)

47. Portugal (108.7%)

149. Liechtenstein (84.7%)

100. Djibouti (98.8%)

48. Albania (108.6%)

150. Mozambique (84.4%)

155. Afghanistan (88.0%)

190. Swaziland (98.0%)

175. Afghanistan (55.6%)

The gender empowerment measure (GEM) reveals whether women take an active part in economic and political life. It tracks the share of seats in parliament held by women; of female legislators, senior officials and managers; and of female professional and technical workers- and the gender disparity in earned income, reflecting economic independence. Differing from the GDI, the GEM exposes inequality in opportunities in selected areas.

Korea (Republic of) ranks 61stout of 109 countries in the GEM, with a value of 0.554.

Migration

Every year, millions of people cross national or international borders seeking better living standards. Most migrants, internal and international, reap gains in the form of higher incomes, better access to education and health, and improved prospects for their children. Most of the world's 195 million international migrants have moved from one developing country to another or between developed countries.

Korea (Republic of) has an emigration rate of 3.1%. The major continent of destination for migrants from Korea (Republic of) is Northern America with 50.3% of emigrants living there.

Table 3: Emigrants

Origin of migrants

Emigration rate (%)

Major continent of destination for migrants

(%)

1. Antigua and Barbuda

45.3

Asia

46.6

5. Samoa

37.2

Northern America

16.6

112. Philippines

4.0

Northern America

49.9

126. Malaysia

3.1

Asia

66.8

127. Korea (Republic of)

3.1

Northern America

50.3

136. Timor-Leste

2.6

Asia

39.5

138. Viet Nam

2.4

Northern America

57.4

181. Mongolia

0.3

Europe

40.7

Global aggregates

OECD

3.9

Northern America

41.2

Very high human development

3.4

Europe

39.2

World

3.0

Europe

33.4

In Korea (Republic of), there are 551.2 thousand migrants which represent 1.2% of the total population.

Table 4: Immigrants

Destination of migrants

Immigrant stock (thousands)

Destination of migrants

Immigrants as a share of population (%) 2005

1. United States

39,266.5

1. Qatar

80.5

16. Hong Kong, China (SAR)

2,721.1

8. Hong Kong, China (SAR)

39.5

39. Thailand

982.0

134. Solomon Islands

1.4

61. China

590.3

139. Timor-Leste

1.2

63. Korea (Republic of)

551.2

141. Korea (Republic of)

1.2

76. Philippines

374.8

142. Tonga

1.1

82. Cambodia

303.9

159. Vanuatu

0.5

182. Vanuatu

1.0

182. China

0.0

Global aggregates

OECD

97,622.8

OECD

8.4

Very high human development

107,625.9

Very high human development

11.1

World

195,245.4

World

3.0

Human development index 2007 and its components

Human development index value, 2007

0.937

Life expectancy at birth (years), 2007

79.2

Adult literacy rate (% aged 15 and above), 2007

..

Combined gross enrolment ratio in education (%), 2007

98.5

GDP per capita (PPP US$), 2007

24,801

Life expectancy index, 2007

0.904

Education index, 2007

0.988

GDP index 2007

According to the human development report of 2009, the life expectancy of South Korea was 79.2 years, which is a very good number. That means the people in the country are expected to live up to 79years old before they die. This ranks South Korea as the 26th when compared with other countries of the world. The adult literacy data was not provided during the time of publishing. The combined gross enrolment ratio measures the percentage of enrolment in education and we can see that it is very high in south Korea at a percentage of 98.5 ranking at the 26th spot in the world. This shows that there is a great deal of enrolment in the education system of South Korea. Life expectancy index is at 0.904 and the education index is also high at 0.988. The GDP index is also high at 0.920.

. Health and education

Government expenditure on health per capita (PPP US$), 2006

819

Government expenditure on health as a percentage of total government expenditure

11.9

Public current expenditure on primary education per pupil (PPP US$)

3,379

Public expenditure on education as a percentage of total government expenditure, 2000-2007

15.3

Percentage of total aid allocated to social sectors (gross disbursements), 2007

..

Percentage of adults with low educational attainment levels (% aged 25 and above)

36.2

Percentage of adults with medium educational attainment levels (% aged 25 and above)

40.4

Percentage of adults with high educational attainment levels (% aged 25 and above)

23.4

Under 5 mortality rate in the highest quintile of wealth (per 1,000 live births)

..

Under 5 mortality rate in the highest quintile of wealth (per 1,000 live births)

..

Under 5 mortality rate for children of mothers with at least secondary education (per 1,000 live births)

..

Under 5 mortality rate for children of mothers with at least secondary education (per 1,000 live births)

..

Healthy life expectancy at birth (years), 2007

74

Unhealthy life expectancy (%), 2007

7

0.920

In terms of health and education, we can see that the government expenditure on health as a percentage of GDP is at 11.9%, meaning that the government spends 11.9% of its GDP income on health. It also spends 15.3% of its GDP income on education, showing that health and education are one of the most important aspects in the country. The percentage of adults with low educational attainment level is relatively high at 36.2% compared to those with high educational attainment at 23.4%. Still, those with medium educational attainment are the ones dominating the country at 40.4%. the healthy life expectancy at birth is 74 years, which means that most children born are expected to live up to around 74 years and the unhealthy life expectancy in the country is at 7%, which is very low.

* http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Korea-South-ECONOMIC-SECTORS.html#ixzz0ldHPjTSu

* http://www.heritage.org/index/pdf/2010/countries/southkorea.pdf

* http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Korea-South.html#ixzz0ldPAY600

* http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Korea-South.html#ixzz0ldOkvsYU

* http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Korea-South.html#ixzz0ldPyndcw

* http://www.iexplore.com/dmap/South+Korea/History

* http://www.iie.com/publications/papers/paper.cfm?ResearchID=458

* http://hdrstats.undp.org/en/countries/data_sheets/cty_ds_KOR.html

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