An Economic Overview Of South Korea Economics Essay

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The Korean peninsula is located in the northeastern part of Asia. The southern half of the peninsula borders on the east sea and the Yellow Sea. To the North, Korea shares its border with China and Russia. Besides the mainland peninsula, Korea also has about 3,000 islands. Japan ruled Korea from 1910 till 1945.

Later the peninsula was divided into two parts and this led to a cold war. After the Korean War (1950-1953), Korea remained split into two parts- the Republic of Korea (ROK) and the Democratic People's Republic of Korea (DPRK). A demilitarized zone was established with the US establishing a base with soldiers close to this zone in South Korea ( 2004).

The Republic of Korea (ROK) is ideally situated geographically in Asia. It is close to China, the new leading economy in the world. Japan is also close-by and a good trading partner. Furthermore, Singapore, a stable economic country is a close trade partner and India, which is fast becoming the 2nd economy in the world is supporting the South Korean economy.

The Republic of Korea (ROK) government was formally established on August 15, 1948. The head of state is the President. He is the country's representative in international affairs. When the President is absent, then the Prime Minister stands in for him and acts as president. The prime Minister's role is that of executive assistant to the President. An executive branch, of which the President is head, consists of the prime Minister, the Cabinet, 15 executive ministries and 16 independent agencies. This includes the Jeju Special Self-Governing province ( 2004).


South Korea has a strong political system led by a president with a lot of power. Presidential elections are held every 5 years and the whole country vote for him. The President elects his Prime Minister. The Legislature is elected every 4 years and consists of the National assembly.243 of the 299 seats of the national assembly is by voting. The rest is appointed by political parties. The ROK has 9 provinces and 7 provincial- level cities.

Koreans are of one ethnic group and background. As at the end of 2002, the country's population stood at about 47,640,000. Now it stands at about 48,636,068 (July 2010 est.) Life expectancy as at 2001 was estimated at 76.5 years, and now in 2010 it is 79.8 years. The country is ranked at 12th in the Human Development Index, 2010.Gross National Income(GNI) per capita (2010) is $29,518 (UNHDI 2010).

Literacy Rate:

It is estimated that all over the age of 15 and over can read and write. The literacy rate for the total population stands at 97.9%. For males it is 99.2% and for females it is 96.6% (2002) (CIA Factbook 2010).


The country has a total surface area of 99,720 sq km of which the land area is 96,920 sq km. water area is about 2,800 sq km and the coast line is 2,413 kilometers (CIA Factbook 2010). The country's landmass is mostly made up of mountains, rolling hills and uplands. There are wide coastal plains to the west and the south. A negative effect of the fast growing industrialization and developing economy as well as urbanization has caused a lot of pollution to the environment. ( OECD/IEA 2003).Fortunately the government has acknowledge this as a problem and has introduced plans to clean the environment and protect it.

Pollution of air and water as well as the environment are main issues to address. Most of them are connected to health problems. By the end of the 1980s the government launched an environmental policy to look at overcoming the problems. The Korean Environmental agency became a Ministry in 1990. The country started addressing its problems and started following and paying attention to international treaties in terms of pollution, such as the Kyoto-Protocol ( 2004).


Korea is part of the monsoon area in Asia. It has a temperate climate. There are four distinct seasons. Moving air from Asia influences the weather more than air from the Pacific ocean. Winters are long and cold with snow. In contrast, the summers are short, hot and humid. The Spring and Autumn seasons are nice but short. Mean temperatures in Seoul in January is about -5C to 2.5C. IN July it is pleasant at about 22 - 25C. There is enough rainfall in Korea to help agriculture. Rainfall is almost never less than 75cm and sometimes it goes as high as 100cm. Rainfall however can vary and dry seasons or drought can occur. Most rain falls between June and September. The country does not get typhoons like Japan. Around 1 to 3 typhoons can happen annually. These can bring heavy rain with flooding which can cause lots of damage and deaths. In 1984 such a typhoon and floods caused deaths of about 190 people and left 200,000 people homeless (Country Studies).

Local Culture:

South Koreans have traditions and cultural activities that span thousands of years. However, there have been recent lifestyle changes. These are as in other countries largely due to modernization and a fast growing economy. Tied to this are the higher incomes from jobs and this leads to consumerism. Lifestyle changes and a higher younger population increase critical views of 'old-style' culture and traditions. So there is a clash between younger people and older people in terms of culture and traditions. Clothing is but one such factor. Fashion, coming from Western countries, has a remarkable influence on people. This leads to fashion-consciousness and westernization. More money leads to more buying and shopping. Electronics also has a major influence on young peoples' lives. South Korea manufactures high-tech products and these are used widely, such as mobile phones, computers and the internet. Many people are choosing jobs according to their aptitudes and abilities and not just for the income. Higher incomes have made it possible for people to spend more time and money on leisure activities. Leisure activity spending has increased from 10% to 25% of total household disposable income. Despite this diversification of lifestyle, many people still maintain a traditional lifestyle whereby the family ideals are treasured. Also, that the organization is more important than the individual (PWC 2005).

Buyer behavior:

As the economy in South Korea developed and people became more employed, so demand for various products increased. Consumer behavior in the field of tourism is notable. In 2009 Korean Air celebrated 40 years of being in service and the demand for overseas travel increased. Also, the domestic market welcomed many tourists to Korea. Samsung developed hotels and Hyundai supplied cars to the car rental market. Millions of Koreans travelled out of Korea and this figure was set to grow by about 8.6% (Au & Jung 2009).

The Korean people and consumers soon became brand and price sensitive as in other flourishing economies. People would shop as their incomes allow. The higher income groups would shop in up-market shops and areas, buying expensive branded products. Lower income groups will still shop in lower-end department stores and markets. Even during the Korean economic slump in 1997- 1999. Buying only slowed down, but did not stop. Even the recent world economic crisis did not stop buying completely, it only slowed down.

Consumer spending also affects the South Korean furniture market which amounted to over US$ 5 billion in the year 2009. It is a large market, when compared with the other 60 countries monitored by CSIL. This market was performing well during the year before the financial crisis. As for future trends, CSIL forecasts are for a stable situation for the year 2010 and a moderate recovery for the year 2011 and2012 (CSIL Milano 2010).

ROK Economy:

South Korea did not become a fully developed country overnight; it is still developing. It can be said that South Korea, though technically Less Economically developed, it is classified as a newly industrialized country (NIC). The sudden and rapid economic development and growth started at a rate and pace not seen since World War II. NIC countries are those that have not reached the status of a developed country. However, it has outpaced other developing countries.

After WW II, South Korea was dependent on aid from the US. In 1961 South Korea underwent an internal revolution. The countries rulers embarked on a series of 5 year plans to become self-supporting. The 5-year plans were devised to bring economic prosperity, wealth and political stability. One goal was to reduce importation of goods and rather produce locally. Another goal was to export manufactured goods and so stimulate industrialization.

Development: The five-year plans

1962 -1966 - a focus on textiles; make South Korea self-sufficient

1967- 1971 - move the state into production of heavy industry

1971 - 1976 - Continue to shift the state in to heavy industry (including iron and steel)

1977 - 1981 - the development of industries; the aim is to compete on world markets (make electronics and cars)

1982 -1986 -Goal to create high-technology products

1987 -91 - continuing on the goals of previous 5-year plans

1992 - 1996 - investigate and start developing aerospace & micro engineering.

It was through the 5-year plans that South Korea changed from an underdeveloped country after WW II to an economic giant and a prospering economy in the world. At present it is home to a high-tech and industrialized manufacturing economy. Its finished products of high-end electronics and cars are exported all over the world. The quality of its products is high and sought after. Electronics by LG and Samsung as well as cars by Hyundai and Kia are sold worldwide. It was only possible to do so by having a skilled workforce. To attain this country invested a lot of its GDP in education.

The global economic downturn and recession affected Korea just like other countries. Despite this, Korea is in the favourable position that recovery is possible. This is the prediction by the International Monetary Fund (IMF). The prediction is based on the country's economic basis. The backbone of Korea is its sound and developed industries which make products that are renowned for its quality and technological advancements. Shipbuilding has made Korea the world's leader in this field. Semiconductors and displays are also highly ranked. Today Korea has one of the fastest growing economies in the world and the leading economy in Asia ( 2010).

Korea which has a place on the G20 countries is expected to grow the fifth fastest of all the member countries. It is predicted that if growth is sustained that it will move up into 4th position in 2011. At a meeting in September 2010 held by the G20 Finance and Central Bank Deputies, the growth for Korea is estimated at 6.1 % for 2010. It is predicted that growth for 2011 will be around 4.5%. China, its neighbour, is currently growing at 10.5%, and India is next at 9.4%.

The strong financial reserves of Korea and its competitiveness in exports is helping the country to come out of the economic downswing. The IMF and G20 nations are impressed with Korea's ability to overcome the economic recession whereas other nations are struggling to do so (C. Ji-Eon 2010).

The organization for Economic Co-operation and Development (OECD) ranks Korea first in terms of its member countries. Data by the OECD shows Korea's GDP rate growth to have increased by 7.1% compared with that of last year. Korea shows the highest rate of the 17 OECD nations who submitted data. A strong point of Korea's economy is its competitive power in terms of manufacturing industries. This helped the economy to recover. Also, domestic consumption as well as investment helped the economy to recover. "Korea is also the only country that has grown four straight quarters since the third quarter last year. Korea's economic growth in the second quarter last year was at minus 2.1%, but increased by 1.1% next quarter. In the fourth quarter last year, growth was 6.1%, while growth in the first quarter of this year was 8.1% and 7.1% growth in the second quarter. Meanwhile, Germany reported the highest first quarter growth at 2.2% in the first quarter compared with the first quarter of 2010, followed by Korea (1.5%), Slovakia and Sweden (1.2%), and The UK (1.1%)" ( J. Seoyoung Choi ).

Korea is ranked 11th among OECD nations, showing a surplus of 1.28 billion dollars in its international balance of payments in 2010. This is according to OECD Quarterly National Accounts information released August 25, 2010.In this report 12 of the 32 OECD member countries showed a surplus in the 1st quarter of 2010. Japan showed the largest surplus, with 50.2 billion dollars, followed by Germany with 39.7 billion, Switzerland with 20.6 billion, Norway with 14.7 billion, and the Netherlands with 12.5 billion dollars. Korea placed 11th, following Austria (1.48 billion dollars) and Chile (1.3 billion dollars). 

In contrast with this, the US showed a deficit of $109 billion followed by Spain with $23.4 billion and Italy with $19.4 billion in the 1st Quarter. Korea showed a deficit of $7.5 billion in the 3rd Quarter of 2008, however, the country rebounded and showed surpluses for 6 straight Quarters since then (J. Seoyoung Choi 2010).

Korea and the G20 in 2010:

Korea played host in November 2010 to the leaders of the G20 nations in Seoul. They met to discuss the world economic indicators as countries come out of the financial crisis. The main aim was to see how to stabilize economies, move forward and try and stimulate growth. For Korea, an emerging economy and country, this was something to be proud of. At last it has earned a place among former leading economies. Other bodies present were the International Monetary Fund (IMF), the World Bank as well as the Financial Stability Board. This meeting of the G20 represented more than 85% of the world economy. Past G20 decisions were again revisted and the meeting pledged to co-operate to and to reform international financial organizations to side-step a repeat of the present global financial turmoil.

Country Evaluation:

ROK has proven that it has a strong, growing economy. It has a high literacy rate and loads of skilled workers. It has proven to manufacture many products , such as electronics and cars of high quality. South Korea is a leading country of all new emerging economies and is highly rated by the OECD, IMF, G20, G8 and other international bodies and organizations. The country has developed rapidly despite the financial crisis in Asia in the late 1980s -1990s. Now it has enormous cash reserves and is growing rapidly in the economic field. While other economies are trying to get out of the global recession, Korea is moving ahead at a quick pace.

SWOT Analysis: South Korea


Great industries

Strong, growing economy

Strong trading partners

Member of G20

High literacy rate

Skilled workers

Biggest shipbuilder in world


Weather: floods; drought

Cutback of buying by countries

Environmental damage: industries

Far from trading partners: Europe


New trading partners: exports

Local consumers

Leader in technology


Political differences with North Korea

Other manufacturing countries: China

Loss of trading partners


The Korean Government announced in October 2010 that Foreign Direct Investment (FDI) in the country has slowed down and the numbers have dropped by 13.1 % in the 3rd Quarter compared to a year ago. The main reasons given are a stronger currency (Kwon) and a slow recovery of the global investment market. The amount as FDI is US$2.93 billion in July-September. Last year at the same time the figure stood at $3.37 billion. The cumulative DI for the first 9 months came to $7.26 billion which was down by 9.4% of the amount in 2009.The currency (WON) stood at 1,164.4 to $1 US from January- September 2010, compared to 1,314.9 WON in 2009. Although this is a negative for Korea, other countries are equally affected due to the global economic recession. China is one of Korea's best FDI counries. The FDI from the US, Japan and European Union, former strong FDI's dropped by about 41.1% due to the economic crisis in the mentioned countries. However, Japan remains one of the largest FDI countries, having invested more than $1 billion in 2010, although this is down by 42.7% compared to the Japanese FDI of 2009. IN contrast, the Chinese FDI stood at 127.2% up for 2010, with $330 million investments. Middle eastern Countries FDI went up to 390% at $167 million (YonHapNews 2010).



  Following are facts and figures up to 2006 of FDI by Korea to India; it is interesting to compare this with the above inflow of FDI into Korea.


(as on 30.06.2006)

FDI inflows & approvals:

􀂾Cumulative FDI inflows (net of ADRs/GDRs) during 1991-2006 (up to June) is US$ 40.63 billion, including amount of acquisition of existing shares (upto 1999), RBI's-NRI Schemes, stock swapped & advance pending for issue of shares.

􀂾South Korea ranks 9th & Cumulative FDI inflows (net of ADRs/GDRs) from South Korea is US$ 0.76 billion (2.07%), excluding FDI inflows received for acquisition of existing shares (upto 1999), RBI's-NRI Schemes, stock swapped & advance pending for issue of shares.

􀂾Total FDI approvals (net of ADRs/GDRs) during the last fifteen years are over US$ 70.33 billion.

􀂾South Korea ranks 5th & accounts for about 3.78% with FDI approvals (net of ADRs/GDRs) of US$ 2.67 billion of the total investment approvals.

Top Sectors attracted FDI Inflows& approvals:

􀂾Top sectors attracting FDI approvals (from August 1991 to June 2006) from South Korea are Transportation Industry (38.17%), Fuels (power & oil refinery) (32.46%), Electrical Equipments (including computer software & electronics) (10.62%), Chemicals (other than fertilizer) (6.07%) and Commercial, Office & House-hold Equipments (3.94%).

􀂾Top sectors attracting FDI inflows (from January 2000 to June 2006) from South Korea are Electrical Equipments (including computer software & electronics) (41.49%), Metallurgical Industries (26.13%), Food Processing Industries (9.81%), Transportation Industry (6.69%) & Industrial Machinery(1.69%).

Technical collaborations :

􀂾Total (overall) technical collaborations during the last fifteen years (Nos.) 7,792.

􀂾South Korea has been granted 228 technical collaborations (2.93% of the total) since, 1991.

􀂾Top five sectors attracting technology transfer from South Korea are Transportation Industry (55 nos.), Electrical Equipments (including computer software & electronics) (48 nos.), Chemicals (other than fertilizer) (19 nos.), Misc. Mechanical Engg. Industries (14 nos.) & Metallurgical Industries (13 nos.).

ROK & the UAE

The UAE is going ahead to build nuclear reactor plants to produce electricity. South Korea has won the contract to build the nuclear plants here in the UAE. The Korean technology as well as their expertise secured the contracts and the construction will soon start.