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World > Asia > Korea, South > Economy (Notes)

Korea, South - Economy (Notes)


ECONOMY
The Republic of Korea?s economic growth over the past 30 years has been spectacular. Per capita GNP, only $100 in 1963, exceeded $16,000 in 2005. South Korea is now the United States? seventh-largest trading partner and is the 11th-largest economy in the world.

In the early 1960s, the government of Park Chung Hee instituted sweeping economic policy changes emphasizing exports and labor-intensive light industries, leading to rapid debt-financed industrial expansion. The government carried out a currency reform, strengthened financial institutions, and introduced flexible economic planning. In the 1970s Korea began directing fiscal and financial policies toward promoting heavy and chemical industries, consumer electronics, and automobiles. Manufacturing continued to grow rapidly in the 1980s and early 1990s.

In recent years, Korea?s economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. Korea bounced back from the 1997-98 Asian financial crisis with some International Monetary Fund (IMF) assistance, but 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% in 1999 and 9% in 2000. The slowing global economy and falling exports slowed growth to 3.3% in 2001, prompting consumer stimulus measures that led to 7.0% growth in 2002. Consumer over-shopping and rising household debt, along with external factors, slowed growth to near 3% again in 2003. Economic performance in 2004 improved to 4.6% due to an increase in exports, and remained at or above 4% in 2005 and into 2006.

Economists are concerned that South Korea?s economic growth potential has fallen because of a rapidly aging population and structural problems that are becoming increasingly apparent. Foremost among these structural concerns is the rigidity of South Korea?s labor regulations, the need for more constructive relations between management and workers, the country?s underdeveloped financial markets, and a general lack of regulatory transparency. Restructuring of Korean conglomerates ('chaebols') and creating a more liberalized economy with a mechanism for bankrupt firms to exit the market are also important unfinished reform tasks. Korean policy makers are increasingly worried about diversion of corporate investment to China and other lower wage countries.

North-South Economic Ties
North and South Korea have moved forward on a number of economic cooperation projects. The following projects are most prominent: Kaesong Industrial Complex (KIC): Since the June 2003 groundbreaking, the KIC has grown to include a variety of South Korean companies operating in this North-South cooperation project. The R.O.K. envisages a substantial enlargement of participation in the project in the following years, although new investment was suspended following the North?s testing of a nuclear device in October 2006. Tourism: R.O.K.-organized tours to Mt. Kumgang in North Korea began in 1998. Since then, more than a million visitors have traveled to Mt. Kumgang. Infrastructure Development: Although east and west coast railroad and roads links have been reconnected across the DMZ, neither rail link has been tested. The roads crossing the DMZ are used on a daily basis between South Korea and Mt. Kumgang, as well as to the Kaesong Industrial Complex.

Two-way trade between North and South Korea, legalized in 1988, hit almost $1.35 billion in 2006, up 27.8% from 2005. This total included a substantial quantity of non-trade goods provided to the North as aid (fertilizer, etc.) or as part of inter-Korean cooperative projects. According to R.O.K. figures, about 60% of the total trade consisted of commercial transactions, much of that based on processing-on-commission arrangements. The R.O.K. is North Korea?s second-largest trading partner.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Korean Won Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions
Korean Won Exchange Rates


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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