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The South Korean economy grew almost non-stop from near zero to over a trillion dollars in less than half a century.

Miracle on the Han River (Hangul: 한강의 기적 Hangangeui Kijeok) refers to South Korea's highly accelerated export-fueled economic growth, overnight industrialization, technological achievement, education boom, exponential rise in living standards, rapid urbanization, skyscraper boom, modernization, successful hosting of the 1988 Summer Olympics and 2002 FIFA World Cup, fast democratization and globalization that miraculously transformed the country from the ashes of the Korean war to a wealthy and highly developed country today with a globally influential trillion dollar economy and well-known multinational conglomerates such as Samsung, LG and Hyundai-Kia.[1]

More specifically, this phrase refers to the economic growth of Seoul, through which the Han River flows. The phrase comes from the "Miracle on the Rhine", which is used to describe the economic rebirth of West Germany after World War II, resulting partially from the Marshall Plan. The word "miracle" is used to describe the growth of postwar South Korea into the world's 13th largest economy and a role model for many developing countries,[2] something considered to be impossible by many at the time. Seoul's infrastructure was destroyed by the Korean War and millions lived in poverty at the time, with thousands of unemployed people struggling to fulfill basic needs. In less than four decades, this "hopeless" city was completely transformed into a world leading global city, a centre of business and commerce in Asia and a highly developed world city and economic hub, having among the most advanced technological infrastructure in the world. It is considered by many Koreans as a symbol of national pride and "can-do" spirit.

Contents

History

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Exponential growth from 1960s to 1980s

The 63 Building is an iconic landmark of the economic miracle and was the tallest building in Asia when it was constructed in 1985.
The $40 billion Songdo International City in Incheon is the largest private real estate development in history.[3]

South Korea's real gross national product expanded by an average of more than 8 percent per year, from US$3.3 billion in 1962 to US$204 billion in 1989, breaking the trillion dollar mark in 2007. Per capita annual income grew from US$87 in 1962 to US$4,830 in 1989, reaching the $20,000 milestone in 2007. The manufacturing sector grew from 14.3 percent of the GNP in 1962 to 30.3 percent in 1987. Commodity trade volume rose from US$480 million in 1962 to a projected US$127.9 billion in 1990. 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, low 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, Seoul'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.

Strong financial stability

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. Seoul 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.

High-tech industries in the 1990s and 2000s

Samsung Group is the world's largest conglomerate,[4] leading several key industries in the world such as high-tech electronics.
South Korea is one of the world's top five automakers, led by Hyundai-Kia.
South Korea is the world's largest maker of LCD, Plasma display, OLED and CRT displays.
South Korea is the world's largest shipbuilder, led by Hyundai Heavy Industries and Samsung Heavy Industries.

In recent years South Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. South Korea bounced back from the 1997 Asian Financial Crisis and carried out extensive financial reforms that restored stability to markets. Growth plunged by 6.6% in 1998, then strongly recovered to 10.8% in 1999 and 9.2% in 2000. These economic reforms, pushed by President Kim Dae-jung, helped Korea maintain one of Asia's few expanding economies, with growth rates of 10.8% in 1999 and 9.2% in 2000. Growth fell back to 3.3% in 2001 because of the slowing global economy, falling exports, and the perception that much-needed corporate and financial reforms have stalled. Led by industry and construction, growth in 2002 was 5.8%, despite anemic global growth. Restructuring of Korean conglomerates (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. Growth slowed again in 2004, but production expanded 5% in 2006, due to popular demand for key export products such as HDTVs and mobile phones.

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.

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