|Economy of South Korea|
|Currency||South Korean Won (W)|
|Fiscal year||Calendar year|
|Trade organizations||APEC, WTO and OECD|
|GDP (PPP)||$1.342 trillion (2008)|
|GDP (Nominal)||$947.0 billion (2008)|
|GDP (PPP) per capita||$27,646 (2008)|
|GDP world ranking||13th (PPP) (2008); 15th (nominal) (2008);|
|GDP growth||2.2% (2008)|
|GDP by sector||agriculture (3.0%), industry (39.5%), services (57.6%) (2008 est.)|
|Inflation||4.7% (2008 est.)|
|Labour force||24.35 million (2008 est.)|
|Labour force by occupation||agriculture (7.2%), industry (25.1%), services (67.7%) (2008 est.)|
|Unemployment||3.2% (2008 est.)|
|Main industries||electronics, automobile production, chemicals, shipbuilding, steel, textiles, clothing, footwear, food processing, treatment|
|Trading Partners |
|Exports||$433.5 billion (2008)|
|Main Export Partners||the People's Republic of China 25.5%, U.S. 10.9%, Japan 6.4% (2008)|
|Imports||$427.4 billion (2008)|
|Main Import Partners||The People's Republic of China 19.2%, Japan 15.1%, U.S. 8.8%, Saudi Arabia 6.1% (2008)|
|Public finances |
|Public debt||24.4% of GDP (2008)|
|External debt||$381.1 billion (2008)|
|Domestic credit||$937.0 billion (2008)|
|Reserves of foreign exchange||$264.2 billion (October 2009) |
|Revenues||$227.5 billion (2008)|
|Expenditures||$216.7 billion (2008)|
|Economic aid||ODA, $745 million (2005)|
The economy of South Korea is a prosperous, highly industrialized and technologically advanced free market economy that is the second largest developed economy in Asia. South Korea is the largest Asian Tiger and had the world's fastest growing major economy for three straight decades, expanding at over 8.7% annually from 1960 to 1990. Its rapid transformation into a wealthy economy in this short time was termed the Miracle on the Han River. This growth surge was achieved through manufactured exports and a highly educated and motivated workforce. Today, South Korea is the world's fastest growing major developed economy and its success story serves as a role model for many developing countries.
A member of the OECD and the 2010 chair of the G-20 major economies, South Korea is classified as a high-income economy by the World Bank, an advanced economy by the IMF and CIA and a developed market by the FTSE Group. It has a very high HDI, measuring particularly high in the Education Index, where it is ranked first in Asia and seventh worldwide. South Korea is one of the 24 selected OECD members in the Development Assistance Committee, a group of the world's major donor countries.
South Korea posses many globally well-known multinational brands, including Samsung, LG and Hyundai-Kia, of which Samsung Group is currently the world's largest conglomerate owning Samsung Electronics, the world's largest electronics maker. in 2009, Hyundai Kia Automotive Group surpassed Ford as the world's fourth largest automaker.
As the world leader in digital technology, South Korea is ranked first in the world in the Digital Opportunity Index and is the world's most wired country, with the world's highest broadband internet access per capita and the fastest Internet connections that is 15 years ahead of the United States, powered by a nationwide 100Mbps fibre-optic network that is currently being upgraded to 1Gbps by 2012. It is ranked as the world's most innovative country among major economies in the Global Innovation Index and has the third largest number of patents in force worldwide.
South Korea is the world's largest shipbuilder and one of the top five automobile makers in the world. It is Asia's third largest exporter and surpassed the United Kingdom, Russia and Canada in 2009. It is also Asia's largest exporter of oil products, and dominant in the global construction industry, in which South Korea's Samsung C&T built Burj Khalifa, the world's tallest building. South Korea's POSCO is the world's second largest steel maker. The country's industrial powerhouse, Ulsan, has a GDP per capita of $63,817 and is the world's third wealthiest economy if ranked. It is home to the world's largest automobile factory, the world's largest shipyard and the world's largest oil refinery.
South Korea is pursuing numerous multi-billion dollar developments, most notably the Digital Media City, Centum City and Songdo International City. The 133-floor supertall Digital Media City Landmark Building is slated to become the world's second tallest building in 2015, housing the world's tallest observatory and hotels, while the 151-floor supertall 151 Incheon Tower will become the world's tallest twin towers in 2014. Centum City is home to the world's largest department store, the Shinsegae Centum City.
Following Japanese rule and the Korean War, the Syngman Rhee administration of the newly formed South Korean state used foreign aid from the United States during the 1950s to build an infrastructure that included a nationwide network of primary and secondary schools, modern roads, and a modern communications network. The result was that by 1961, South Korea had a well-educated young work force and a modern infrastructure that provided a solid foundation for economic growth. South Korea signed in 1965 to Treaty on Basic Relations between Japan and the Republic of Korea. Hereby, South Korea received $800 million in grants and soft loans from Japan. The South Korea government spent most of its money establishing social infrastructures and corporation, founding POSCO, building Gyeongbu Expressway and the Soyang River Dam.
South Korea's real gross domestic product expanded by an average of more than 8.7% per year, from US$30.3 billion in 1960 to US$340.7 billion in 1989. GDP per capita grew from US$1,226 in 1960 to US$8,027 in 1989. Thanks to industrialization GDP per hour worked (labor output) more than tripled from US$2.80 in 1963 to US$10.00 in 1989. The ratio of domestic savings to GNP grew from 3.3 percent in 1962 to 35.8 percent in 1989.
The most significant factor in rapid industrialization was the adoption of an outward-looking strategy in the early 1960s. This strategy was particularly well suited to that time because of South Korea's poor natural resource endowment, high savings rate, and tiny domestic market. The strategy promoted economic growth through labor-intensive manufactured exports, in which South Korea could develop a competitive advantage. Government initiatives played an important role in this process. The inflow of foreign capital was greatly encouraged to supplement the shortage of domestic savings. These efforts enabled South Korea to achieve rapid growth in exports and subsequent increases in income.
By emphasizing the industrial sector, Korea's export-oriented development strategy left the rural sector relatively underdeveloped. Increasing income disparity between the industrial and agricultural sectors became a serious problem by the 1970s and remained a problem, despite government efforts to raise farm income and improve rural living standards.
In the early 1980s, in order to control inflation, a conservative monetary policy and tight fiscal measures were adopted. Growth of the money supply was reduced from the 30 percent level of the 1970s to 15 percent. Seoul even froze its budget for a short while. Government intervention in the economy was greatly reduced and policies on imports and foreign investment were liberalized to promote competition. To reduce the imbalance between rural and urban sectors, Seoul expanded investments in public projects, such as roads and communications facilities, while further promoting farm mechanization.
These measures, coupled with significant improvements in the world economy, helped the South Korean economy regain its lost momentum in the late 1980s. South Korea achieved an average of 9.2 percent real growth between 1982 and 1987 and 12.5 percent between 1986 and 1988. The double digit inflation of the 1970s was brought under control. Wholesale price inflation averaged 2.1 percent per year from 1980 through 1988; consumer prices increased by an average of 4.7 percent annually. Korea achieved its first significant surplus in its balance of payments in 1986 and recorded a US$7.7 billion and a US$11.4 billion surplus in 1987 and 1988 respectively. This development permitted South Korea to begin reducing its level of foreign debt. The trade surplus for 1989, however, was only US$4.6 billion dollars, and a small negative balance was projected for 1990.
For the first half of the 90's, the South Korean economy continued a stable and strong growth in both private consumption and GDP. Things changed quickly in 1997 with the Asian Financial crisis that started in Thailand. After several other Asian currencies were attacked by speculators, the Korean Won started to heavily depreciate in October 1997. The problem was exacerbated by the problem of non-performing loans at many of Korea's merchant banks. By December 1997, the IMF had approved a USD$21 billion loan, that would be part of a USD$58.4 billion bailout plan. By January 1998, the government had shut down a third of Korea's merchant banks. Throughout 1998, Korea's economy would continue to shrink quarterly at an average rate of -6.65%. Korean chaebol Daewoo became a casualty of the crisis as it was dismantled by the government in 1999 due to debt problems. American company General Motors managed to purchase the motors division.Indian congolmerate Tata Group, purchased the trucks and heavy vehicles division of Daewoo.
Thanks to action by the Korean government and debt swaps by international lenders the financial problems were able to be contained. Much of South Korea's recovery from the Asian Financial Crisis can be attributed to labor adjustments (ie. a dynamic and productive labor market - flexible wage rates) and alternative funding sources. By the first quarter of 1999, GDP growth had risen to 5.4%, and strong growth thereafter combined with deflationary pressure on the currency lead to a yearly growth of 10.5%. In December 1999, president Kim Dae-jung declared the currency crisis over.
After the bounce back from the crisis of the late nineties, the economy continued strong growth in 2000 with a GDP growth of 9.08%. Growth fell back to 3.8% in the early 2000s because of the slowing global economy, falling exports, and the perception that corporate and financial reforms had stalled. More recently the economy stabilized and maintain a growth rate between 4-5% from 2003 onwards. Restructuring of Korean chaebols, bank privatization, and creating a more liberalized economy with a mechanism for bankrupt firms to exit the market remain Korea's most important unfinished reform tasks.
South Korea relies largely upon exports to fuel the growth of its economy, with finished products such as electronics, textiles, ships, automobiles, and steel being some of its most important exports. Although the import market has liberalized in recent years, the agricultural market has remained largely protectionist due to serious disparities in the price of domestic agricultural products such as rice with the international market. As of 2005, the price of rice in South Korea is about four times that of the average price of rice on the international market, and it was generally feared that opening the agricultural market would have disastrous effects upon the South Korean agricultural sector. In late 2004, however, an agreement was reached with the WTO in which South Korean rice imports will gradually increase from 4% to 8% of consumption by 2014. In addition, up to 30% of imported rice will be made available directly to consumers by 2010, where previously imported rice was only used for processed foods. Following 2014, the South Korean rice market will be fully opened.
Korea was heavily affected by the economic crisis of 2008. Following the bankruptcy of a major Korean institution, the Korean Won lost up to 30% of its value, and the Government of Korea decided to introduce a major "stimulus" package to "stimulate the economy".
In 1961 General Park Chung-hee overthrew the popularly elected regime of Prime Minister Chang Myon. A nationalist, Park wanted to transform South Korea from an agricultural nation into a modern industrial nation that would provide a high quality of life for its citizens while at the same time defending itself from outside aggression. Lacking the anti-Japanese nationalist credentials of Syngman Rhee, for example, Park sought both legitimacy for his regime and greater independence for South Korea in a vigorous program of economic development that would transform the country like he wanted. The Park administration decided that the central government must play the key role in economic development because no other South Korean institution had the capacity or resources to direct such drastic change in a short time. The resulting economic system incorporated elements of both state capitalism and free enterprise. The economy was dominated by a group of large private conglomerates, known as chaebol, and also was supported by a significant number of public corporations in such areas as iron and steel, utilities, communications, fertilizers, chemicals, and other heavy industries. The government guided private industry through a series of export and production targets utilizing the control of credit, informal means of pressure and persuasion, and traditional monetary and fiscal policies.
The government hoped to take advantage of existing technology to become competitive in areas where other advanced industrial nations had already succeeded. Korea presumed that the well-educated and highly motivated work force would produce low-cost, high-quality goods that would find ready markets in the United States and the rest of the industrial world. Profits generated from the sale of exports would be used to further expand capital, provide new jobs, and eventually pay off loans.
In 1961 Park extended government control over business by nationalizing the banks and merging the agricultural cooperative movement with the agricultural bank. The government's direct control over all institutional credit further extended Park's command over the business community. The Economic Planning Board was created in 1961 and became the nerve center of Park's plan to promote economic development. It was headed by a deputy prime minister and staffed by bureaucrats known for their high intellectual capability and educational background in business and economics. Beginning in the 1960s, the board allocated resources, directed the flow of credit, and formulated all of South Korea's economic plans. In the late 1980s, the power to allocate resources and credit was restored to the functional ministries. In 1990, the Economic Planning Board was given primary charge of economic planning; it also coordinated and often directed the economic functions of other government ministries, including the Ministry of Finance. The board was complemented by the Korea Development Institute, an independent economic research organization funded by the government. Other government bodies directing the economy included the Office of the President, which included a senior secretary for economic affairs; the Ministry of Finance; the Ministry of Trade and Industry; the Ministry of Labor; and the Bank of Korea, which was controlled by the Ministry of Finance.
Park's first major goal, which was immediately successful, was to establish a self-reliant industrial economy independent of the massive waves of United States aid that was sent to South Korea during the Rhee years. Modernizing the economy and maintaining overall sustained growth were additional goals in the 1970s. Significant economic policies included strengthening key industries, increasing employment, and developing more effective management systems. Because South Korea was dependent on imports of raw materials, such as oil, a major government objective was to significantly increase the level of exports, which meant stressing greater international competitiveness and higher productivity. The early economic plans emphasized agriculture and infrastructure, the latter were closely tied to construction. Later, the emphasis shifted consecutively to light industry, electronics, and heavy and chemical industries. Using these strategies, an export-driven economy developed.
The government combined a policy of import substitution with the export-led approach. Policy planners selected a group of strategic industries to back, including electronics, shipbuilding, and automobiles. New industries were nurtured by making the importation of such goods difficult. When the new industry was on its feet, the government worked to create good conditions for its export. Incentives for exports included a reduction of corporate and private income taxes for exporters, tariff exemptions for raw materials imported for export production, business tax exemptions, and accelerated depreciation allowances.
The export-led program took off in the 1960s; during the 1970s, some estimates indicate, Korea had the world's most productive economy. The annual industrial production growth rate was about 25 percent; there was a fivefold increase in the GNP from 1965 to 1978. In the mid-1970s, exports increased by an average of 45 percent a year.
The major issue facing the Park regime in the early 1960s was the grinding poverty of the nation and the need for economic policies to overcome this poverty. A critical problem was raising funds to foster needed industrial development. Domestic savings were very low, and there was little available domestic capital. This obstacle was overcome by introducing foreign loans and inaugurating attractive domestic interest rates that enticed local capital into production. Of South Korea, Taiwan, Hong Kong, and Singapore, only South Korea financed its economic development with a dramatic build-up of foreign debt, debt that totaled US$46.8 billion in 1985, making it the fourth largest Third World debtor.
As noted by consultant David I. Steinberg, Korea administered a series of economic development plans. The government mobilized domestic capital by encouraging savings, determined what kinds of plants could be constructed with these funds, and reviewed the potential of the products for export. In this sense, the will of the government to undertake economic development played a crucial role; the role of the government, however, was not limited to such measures as mobilizing capital and allocating investments.
Steinberg also pointed out that Park's government restructured industries, such as defense and construction, sometimes to stimulate competition and other times to reduce or eliminate it. The Economic Planning Board established export targets that, if met, yielded additional government-subsidized credit and further access to the growing domestic market. Failure to meet such targets led to Seoul's withdrawal of credit.
The central government budget has generally expanded, both in real terms and as a proportion of real GNP, since the end of the Korean War, stabilizing at between 20 and 21 percent of GNP during most of the 1980s. Government spending in South Korea has been less than that for most countries in the world (excepting the other rapidly growing Asian economies of Japan, Taiwan, and Singapore). The share of government spending devoted to investment and other capital formation activities increased steadily through the periods of the first and second five-year plans (1962–1971), peaking at more than 41 percent of the budget in 1969. Since 1971 investment expenditures have remained at less than 30 percent of the budget, while the share of the budget occupied by direct government consumption and transfer payments has continued to increase, averaging more than 70 percent during the 1980s.
During the 1980s, the largest areas of government expenditure were economic services (including infrastructural projects and research and development), national defense, and education. Economic expenditures averaged several percentage points higher than defense expenditures, which remained stable at about 22 to 23 percent of the budget (about 6 percent of GNP) during the decade. In 1990, the government was studying plans to lower defense expenditures to 5 percent of GNP. Some observers noted a trend toward a slight increase in the portion of the budget devoted to social spending during the 1980s. In 1987 expenditures for social services—including health, housing, and welfare—were 16.4 percent of the budget, up from 13.9 percent in 1980, and slightly higher than 1987 government outlays for education.
The government revenue structure was virtually totally dependent on taxes. By the early 1980s, nearly two-thirds of tax money was collected in the form of indirect taxes. Revenues collected by the central government in 1987 rose to 19,270.3 billion won, up from 13.197.5 billion won in 1984.
During the 1960s, public enterprises were concentrated in such areas as electrification, banking, communications, and manufacturing. In 1990 these enterprises were, in many cases, efficient revenue-producing concerns that produced essential goods and services at low costs, but which also produced profits that were used for new capital investments or to produce funds for public use elsewhere. In the 1980s, Korea was slowly privatizing a number of these firms by selling stocks, but the government remained the principal stockholder in each company. In the 1980s, an important function of public enterprises was the introduction of new and expensive technology ventures.
In 1985 the public enterprise sector consisted of about 90 enterprises employing 305,000 workers, or 2.7 percent of total employment in the nonagricultural sector. There were four categories of public enterprises: government enterprises (staffed and run by government officials), government-invested enterprises (with at least 50 percent government ownership), subsidiaries of government-invested enterprises (usually having indirect government funding), and other government-backed enterprises. Government-invested public enterprises, such as the Korea Electric Power Corporation (KEPCO) and the Pohang Iron and Steel Company (POSCO), represented the core of the new enterprises established during Park's regime. In the late 1980s, roughly 30 percent of the revenues produced by public enterprises came from the manufacturing sector and the other 70 percent from such service sectors as the electrical, communications, and financial industries.
Financing South Korea's economic development in the 1990s was expected to differ from previous decades in two main respects: greater reliance on domestic sources and more emphasis on equity relative to debt. Beginning in the 1960s, foreign credit was used to finance development, but the amount of foreign debt had decreased since the mid-1980s. According to the Sixth Five-Year Economic and Social Development Plan (1987-91), an average annual growth rate of 8 percent was expected, together with account surpluses of about US$5 billion a year through 1991.
To realize these growth targets, South Koreans needed the gross domestic savings rate to exceed the domestic investment rate; additionally, they needed the financing of future economic growth to come entirely from domestic sources. Such a situation would involve reducing foreign debt by US$2 billion a year; and South Korea would become a net creditor nation in the mid-1990s. Through the promotion and reform of the securities markets, especially the stock market, and increased foreign investment, the sixth plan encouraged the diversification of sources and types of corporate finance, especially equity finance.
Domestic savings were very low before the mid-1960s, equivalent to less than 2 percent of GNP in the 1960 to 1962 period. The savings rate jumped to 10 percent between 1970 and 1972 when banks began offering depositors rates of 20 percent or more on savings accounts. This situation allowed banks to compete effectively for deposits with unorganized money markets that had previously offered higher rates than the banks. The savings rate increased to 16.8 percent of GNP in 1975 and 28 percent in 1979, but temporarily plunged to 20.8 percent in 1980 because of the oil price rise. After 1980, as incomes rose, so did the savings rate. The surge of the savings rate to 36.3 percent in 1987 and 35.8 percent in 1989 reflected the sharp growth of GNP in the 1980s. The prospects for continued high rates of saving were associated with continued high GNP growth, which nevertheless declined to 6.5 percent in 1989.
According to Donald S. Macdonald, through the early 1980s funds for investment came primarily from bilateral government loans (mainly from the United States and Japan), international lending organizations, and commercial banks. In the late 1980s, however, domestic savings accounted for two-thirds or more of total investment.
Throughout the 1980s, the financial sector underwent significant expansion, diversification of products and services, and structural changes brought about by economic liberalization policies. As noted by Park Yung-chul, financial liberalization eased interest ceilings. Deregulation increased competition in financial markets, which in turn accelerated product diversification. In the early 1980s, securities companies were permitted to sell securities through a repurchase agreement. By 1985 banks also were allowed to engage in the repurchase agreements of government and public bonds. In 1981 finance and investment corporations started dealing in large-denomination commercial paper. The new form of commercial paper was issued in minimum denominations of 10 million won, compared to the previous minimum value for commercial paper of 1 million won.
In order to extend their ability to raise cash, investment and finance companies introduced a new cash-management account with a 4 million won minimum deposit in 1983. Investment and finance corporations managed client funds by investing them in commercial paper corporate bonds and certificates of deposit. Money-deposit banks in the mid-1980s began offering similar accounts, known as household money-in-trust. Trust business formerly had been the exclusive domain of the Bank of Seoul and Trust Company; however, after 1983 all money-deposit banks were authorized to offer trust services. The finance|financial system underwent two major structural changes in the late 1970s and 1980s. First, money-deposit banks saw a sustained erosion of their once-dominant market position (from 80 percent in the 1970 to 1974 period to 55 percent by 1984). One reason for this decline was that in the 1970s nonbank finance|financial intermediaries, such as investment trust corporations, finance companies, and merchant banking corporations, were given preferential treatment. Further, because the costs of intermediation at these nonbank finance|financial institutions were lower than at banks (with their many branches nationwide and their multitudes of small savers and borrowers), their cost advantages and higher lending rates allowed them a larger market share.
The second structural change was the rapid increase of commercial paper and corporate debenture markets. Another development was the steady growth of investment trust corporations in the 1980s.
Because of the introduction of tax and financing incentives by the government that encouraged companies to list their shares on the stock market, the Korean Stock Exchange grew rapidly in the late 1980s. In 1987 more than 350 companies were listed on the exchange. There was an average daily trading volume of 10 million shares, with a turnover ratio of 80 percent. In 1989 the stock market was tarnished by accusations of insider trading among the five major South Korean securities firms. The Securities and Exchange Commission launched an investigation in late 1989. The popular index of the market soared to a high of 1,007.77 points on April 1, 1989, but plunged back to the 800s in late 1989 and early 1990.
Business financing was obtained primarily through bank loans or borrowing on the informal and high-interest "curb market" of private lenders. The curb market served individuals who needed cash urgently, less reputable businesspeople who engaged in speculation, and the multitudes of smaller companies that needed operating funds but could not procure bank financing. The loans they received, often in exchange for weak collateral, had very high interest rates. The curb market played a critical role in the 1960s and 1970s in pumping money into the economy and in assisting the growth of smaller corporations. The curb market continued to exist, along with the formal banking system, through the 1980s.
The growth of the industrial sector was the principal stimulus to economic development. In 1987 manufacturing industries accounted for approximately 30 percent of the gross domestic product and 25 percent of the work force. Benefiting from strong domestic encouragement and foreign aid, Korea's industrialists introduced modern technologies into outmoded or newly built facilities at a rapid pace, increased the production of commodities—especially those for sale in foreign markets—and plowed the proceeds back into further industrial expansion. As a result, industry altered the country's landscape, drawing millions of laborers to urban manufacturing centers.
A downturn in the South Korean economy in 1989 spurred by a sharp decrease in exports and foreign orders caused deep concern in the industrial sector. Ministry of Trade and Industry analysts stated that poor export performance resulted from structural problems embedded in the nation's economy, including an overly strong won, increased wages and high labor costs, frequent strikes, and high interest rates. The result was an increase in inventories and severe cutbacks in production at a number of electronics, automobile, and textile manufacturers, as well as at the smaller firms that supplied the parts. Factory automation systems were introduced to reduce dependence on labor, to boost productivity with a much smaller work force, and to improve competitiveness. It was estimated that over two-thirds of South Korea's manufacturers spent over half of the funds available for facility investments on automation.
In 1990 South Korean manufacturers planned a significant shift in future production plans toward high-technology industries. In June 1989, panels of government officials, scholars, and business leaders held planning sessions on the production of such goods as new materials, mechatronics—including industrial robotics—bioengineering, microelectronics, fine chemistry, and aerospace. This shift in emphasis, however, did not mean an immediate decline in heavy industries such as automobile and ship production, which had dominated the economy in the 1980s.
Except for mining, most industries were located in the urban areas of the northwest and southeast. Heavy industries generally were located in the south of the country. Factories in Seoul contributed over 25 percent of all manufacturing value-added in 1978; taken together with factories in surrounding Kyonggi Province, factories in the Seoul area produced 46 percent of all manufacturing that year. Factories in Seoul and Kyonggi Province employed 48 percent of the nation's 2.1 million factory workers.
The Korean Peninsula is only modestly endowed with natural resources, and North Korea has far more natural resources than South Korea. During the Japanese colonial period (1910-45), the North served as the center for mining and industry whereas the South, with somewhat greater rainfall, a warmer climate, and slightly greater arable terrain, served as the center for rice production.
A major land reform in the late 1940s and early 1950s spread ownership of land to the rural peasantry. Individual holdings, however, were too small (averaging one hectare, which made cultivation inefficient and discouraged mechanization) or too spread out to provide families with much chance to produce a significant quantity of food. Additionally, South Korea is a mountainous country with only 22 percent arable land and less rainfall than most other neighboring rice-growing countries.
At the start of the economic boom in 1963, the majority of South Koreans were farmers. Sixty-three percent of the population lived in rural areas. In the next twenty-five years, South Korea grew from a predominantly rural, agricultural nation into an urban, newly industrialized country and the agricultural workforce shrunk to only 21 percent in 1989. Government officials expected that urbanization and industrialization would further reduce the number of agricultural workers to well under 20 percent by 2000.
The enormous growth of urban areas led to a rapid decrease of available farmland, while at the same time population increases and bigger incomes meant that the demand for food greatly outstripped supply. The result of these developments was that by the late 1980s roughly half of South Korea's needs, mainly wheat and animal feed corn, was imported.
Compared with the industrial and service sectors, agriculture remained the most sluggish sector of the economy. In 1988 the contribution of agriculture to overall GDP was only about 10.8 percent, down from approximately 12.3 percent the previous year. Most economists agreed that the country's rural areas had gained more than they had contributed in the course of industrialization. Still, the growth of agricultural output, which averaged 3.4 percent per year between 1945 and 1974, 6.8 percent annually during the 1974-79 period, and 5.6 percent between 1980 and 1986, was credible. The gains were even more impressive because they added to a traditionally high level of productivity. On the other hand, the overall growth of the agriculture, forestry, and fishing sector was only 0.6 percent in 1987 as compared with the manufacturing sector, which grew 16 percent during 1986 and 1987.
Service industries included insurance, restaurants, hotels, laundries, public bath houses, health-related services, and entertainment establishments. There were thousands of small shops marketing specialized items, large traditional marketplaces, and streamlined buildings housing corporate and professional offices. Game rooms featuring Ping-Pong tables, or billiards, and tearooms serving a variety of beverages were located on almost every downtown city corner.
In the mid-1980s, the largest employer of South Korea's service sector was retail trade. A growing number of workers were employed by the department stores (most of which were owned by chaebol) that were opening rapidly in the downtown areas of major urban centers. The vast majority of retailers were small merchants in cities, towns, and villages, each with a modest storefront, or stand, limited stock, and poor access to capital, but the great majority of South Koreans made their purchases from these small retailers. In 1986 there were approximately 26,054 wholesale and 542,548 retail establishments and 233,834 hotels and restaurants that employed about 1.7 million people (these figures probably do not include family members working in small stores).
The distribution system was far from perfect, and managers recognized the need for better organization and management. Most of the nation's wholesalers were located in Seoul and accounted for most of the turnover of goods. Most of the sales outlets were located in the heart of urban centers. Cargo truck terminals and warehouse facilities were spread irregularly through city neighborhoods.
An improved transportation and communications infrastructure, increasing incomes, enhanced consumer sophistication, and government tax incentives encouraged the development of a modern distribution network of chain stores, supermarkets, and department stores.
South Korea's hosting the 1988 Seoul Olympics made 1988 a boom year for tourism. More than 2 million tourists spent US$3.3 billion, an increase in the number of tourists and the dollars spent, respectively, of 24.9 percent and 42.2 percent over 1987. Japanese visitors accounted for 48 percent of the total; tourists from the United States made up 14.9 percent. This trend continued in subsequent years, with 2.95 million foreign visitors arriving in 1990 and 3.8 million in 1995. After the FIFA World Cup in 2002, tourism to South Korea was much promoted throughout the world.
In 2007, South Korea had 6.4 million visitors making it the 36th most visited country in the world. Recently, the number of tourists from China, Taiwan, Hong Kong, and Southeast Asia has grown dramatically due to the increased popularity of hallyu.
Despite significant increases in wages in the 1980s, labour unions in the late 1980s continued their wave of strikes demanding better working conditions and wages. The ferocity and sheer size of the labour movement caught management and the government by surprise. During his first year or so in office, President Roh Tae Woo was confronted with considerable labour unrest; there were more than 300 strikes in the first three months of 1989. Emboldened by the political reforms of 1987 and by reports that the rate of South Korea's economic growth was greater than the improvements in their own incomes and life-styles, many workers agitated for a greater share of the nation's prosperity and sought more freedom and responsibility at the workplace and an end to the traditional paternalism of management. Lost production was estimated to have climbed to US$6 billion in 1989 from US$4.4 billion in 1988.
Workers were caught in a revolution of rising expectations, as a wave of rising urban land values and housing costs outpaced average real wage increases of more than 70 percent during the 1980s. Moreover, wages for manual workers, who were responsible for much of the production and export that fueled the economy, were much lower than the national average. In the late 1980s, working families still found themselves struggling to meet minimum standards of living. Employees also were expected to work long and often erratic hours in exchange for steady employment and were frustrated over a lack of benefits and individual say.
Worker complaints were focused on three areas: low wages, long working hours, and a high number of industrial accidents. In 1986 the average wage of a South Korean worker was US$381 a month (339,474 won), including overtime and all allowances. The basic wage was US$287, or 255,408 won, but, according to the government, the basic wage necessary to sustain a "decent" way of life was US$588 (524,113 won). Thus, the average worker only earned two-thirds of what the government thought necessary to sustain a family of four. In 1987 semiskilled workers typically received US$1.50 to US$2.00 per hour and worked fifty-five to sixty hours a week; unskilled workers worked twelve-hour days seven days a week, earning US$125 a month.
South Korea was known for having the world's longest working hours. In 1986 the Korean worker averaged about 54.7 hours a week. This situation was the natural consequence of the low wage system that necessitated extended hours and extra work to earn minimum living expenses.
There were, however, dramatic increases in wages in 1988 and 1989. Labour stoppages in the manufacturing sector, coupled with a scarcity of labour, led to 20-percent salary increases for workers in the manufacturing sector in 1988 and 25-percent salary increases in that sector in 1989. These raises later spread, increasing wages across the entire economy 18.7 percent in 1989. By 1989 some South Korean economists were worrying about the effect that skyrocketing wages would have on the cost of domestic-made goods and the consequent impact on export prices. The situation was especially worrisome because the wages paid to workers in South Korea's major competitors were growing far more slowly.
Average annual household income is 39,013,596 won (USD 42,108) as of 1Q 2007 retrieved from Korea National Statistical office.
The most important sources of productive growth for South Korean manufacturers had traditionally been directly or indirectly related to the ability of South Korean companies to acquire new technology from abroad and to adapt it to domestic conditions, rather than paying the cost of research and development. However, as Korea's industry and exports continued to evolve toward higher levels of technology, domestic research and development efforts needed to be increased. Fortunately for South Korea, its high level of well-educated workers, who constitute a formidable brain trust for future research and development, are its major asset.
The Korean government began investing in technology research institutes soon after the republic was established. The Korean Atomic Energy Commission founded in 1959 was responsible for research and development, production, dissemination, and management of technology for peaceful applications of atomic energy. In the mid-1960s, the government established the Ministry of Science and Technology to oversee all government research and development activities and the Korea Institute of Science and Technology to function as an industrial research laboratory.
In the 1970s, in order to better coordinate research and development, two scientific communities were established—one in Seoul, the other near Taejon. The Seoul complex included the Korea Institute of Science and Technology, the Korea Development Institute (affiliated with the Economic Planning Board), the Korea Advanced Institute of Science, and the Korea Atomic Energy Research Institute. Plans for the Daeduk Science Town near Taejon were far more ambitious. Modeled after the Tsukuba Science City in Japan, by the late 1980s the Daeduk Science Town accommodated laboratories specializing in shipbuilding, nuclear fuel processing, metrology, chemistry, and energy research. The government founded the Korea Advanced Institute of Science and Technology to develop and offer graduate science programs, and it also encouraged universities to develop their own undergraduate programs in science.
Since 1988, two-way trade between the two Korean countries has increased from $18.8 million in 1989 to $647.1 million in 2002. In 2002, South Korea imported $271.57 million worth of goods from North Korea, mostly agro-fisheries and metal products, while shipping $371.55 million worth of goods, mostly humanitarian aid commodities including fertilizer and textiles as inputs for North Korean garment manufacturers. South Korea is now North Korea's third-largest trading partner, after China and Japan. Numerous ventures by the Hyundai Group have contributed to North Korea's economy, including the Kŭmgang-san (Diamond Mountain) tourist site.
This is a chart of trend of gross domestic product of South Korea at market prices estimated by the International Monetary Fund with figures in millions of South Korean Won.
|Year||Gross Domestic Product||US Dollar Exchange||Inflation Index
For purchasing power parity comparisons, the US Dollar is exchanged at 841.39 Won only. This implies that for 2006, with exchange rates of 945 per dollar, and nominal GDP over 850 trillion won, the GDP will reach over $900 Billion (US dollars).
Industrial production growth rate: 8.0% (2006 est.)
Electricity - production by source:
Agriculture - products: rice, root crops, barley, vegetables, fruit; cattle, pigs, chickens, milk, eggs; fish
Exports - commodities: electronics (5000 of Export - 2004 statistics) - semiconductors, LCD panel, mobile phone, computers related, television, and others, motor vehicle, steel, ships, petrochemicals
Imports - commodities: machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals, plastics