South Korea Economy

As an NIE, South Korea has exp

1. South Korea Economic Growth and Development over Last 25 Years

1.1. South Korea Economic Growth

Figure 1 (“South Korea GDP - real growth rate,” 2010)

As an Asian country, South Korea has experienced significant downturn and upturns

in its economic growth during 1980s, 2997s and 2000s (“South Korea GDP - real growth

rate,” 2010). For instance, they had been growing rapidly from 1980s to 1990s (see Figure

1) (“South Korea GDP - real growth rate,” 2010). During those days, South Korea had been

exporting on its garment and electronic products to its trading partners, such as U.S., Hong

Kong, Japan, Singapore, Germany China, and Taiwan (Thomas White Global Investing,

"Country Profile: South Korea").

Figure 2 (Setser, "This Doesn't Look Good: Taiwan, Korea and China Exports Tank.")

Even after the economy financial crisis in 1998 which contract the GDP to 6.95%,

South Korea could recover faster than most of other Asian countries (Thomas White Global

Investing, "Country Profile: South Korea"); with the help of World Bank and big government

expenditure. But, during the crisis, many big conglomerates like ChaeboI, was helped by the

government incentives during 1980s went bankrupt and crashed the GDP ("South Korea

GDP - real growth rate," 2010); and most of the businesses are financed by foreign

borrowings, although most of it is for short-term (Thomas White Global Investing, "Country

Profile: South Korea"). Thanks to the rapid recovery, by the end of 1999, the GDP could rise

to 9,486 from -6.854 in 1998 (“South Korea GDP - real growth rate,” 2010).


However, after 1999, South Korea is experiencing slight downturn, and crashed in

2009 as their GDP became -0.987 and their growth rate is 2.20% and ranked number 112

(“South Korea GDP - real growth rate,” 2010). This is a bit of shame since South Korea was

able to achieve rank number 19 in 2003 as their growth rate was 6.20% (“South Korea GDP -

real growth rate,” 2010). It seems that they are halting their exports in 2008 and dropped

the GDP rate (Setser, "This Doesn't Look Good: Taiwan, Korea and China Exports Tank").


If a straight line is pulled in 0% change, it can also be seen that, they are trying to

control their changes in exports to be stable (see Figure 4) (Setser, "This Doesn't Look Good:

Taiwan, Korea and China Exports Tank."); not too much, not too low which in effects the

recent downturn in their GDP (“South Korea GDP - real growth rate,” 2010). But, with the

low-level and short-term debt they have, it is predicted that South Korea-along with

Australia, New Zealand, Denmark, and Norway-can survive in the future (Zhi, "S Korea

stands among world's highest-level fiscal reserve holders: IMF”); rather than U.S.A. and

Japan, although South Korea GDP is relatively low (Zhi, "S Korea stands among world's

highest-level fiscal reserve holders: IMF”). This can be the reason why they are brave

enough to risk their exports and have low GDP.

1.2. South Korea Economic Development

After the “Five-Year Economic Development Plan” in 1960s to 1980s,

entrepreneurships are supported by the Park Chung Hee government to grow and allow

them to do enter the global market (U.S. Library of Congress, "Economic Development").

These businesses were the giant private owned businesses called chaebol, which most of

them went bankrupt during the global financial crisis in 1997 (U.S. Library of Congress,

"Economic Development"). The chaebol was the key to grow South Korea economy and to

increase the standard of living; as the chaebol enter the global market and started to export

goods and services which then increase South Korean GDP rapidly (see figure 1) (U.S.

Library of Congress, "Economic Development").

Figure 5 (Charles, Harvie and Mosayeb Pahlavani, "Sources of Economic Growth in South Korea: an application of the ARDL analysis in the Presence of Structural Breaks - 1980-2005 #")

Figure 6 (Charles, Harvie and Mosayeb Pahlavani, "Sources of Economic Growth in South Korea: an application of the ARDL analysis in the Presence of Structural Breaks - 1980-2005 #")

Since the “Fifth Five-Year Economic Development Plan1” (1982 – 1986) had been

implemented, graduates from high school and college or university have been increasing

(see Figure 5) (Charles, Harvie and Mosayeb Pahlavani, "Sources of Economic Growth in

South Korea: an application of the ARDL analysis in the Presence of Structural Breaks -

1980-2005 #"). Naturally, this develops the economic development since this proves that

more Koreans can access better educations from year to year. Logically, the existence of

chaebol has increased the standard of livings for Koreans by increasing employed people

(see Figure 6) (Charles, Harvie and Mosayeb Pahlavani, "Sources of Economic Growth in

South Korea: an application of the ARDL analysis in the Presence of Structural Breaks -

1980-2005 #"); thus, this will able the Koreans to pay for their educations.

1 This plan was implemented by the Park Government Seven times for every five years in different industries. Its purpose was to improve the economic development of South Korea.

Figure 7 (International Human Development Indicators, "Korea (Republic of)")

After all the hard times, South Korea in 2008 had the HDI rate of 0.921 and ranked

26/ 179 ("Human Development Index Statistics," 2008). Then the HDI goes down to 0.877

with health, scored as 0.947 (International Human Development Indicators, "Korea

(Republic of)"); education in 0.891 (International Human Development Indicators, "Korea

(Republic of)"); and income in 0.800 (International Human Development Indicators, "Korea

(Republic of)"). The HDI had been rose by 1.2% since 1980 (see Figure 7), annually, from

0.616 (International Human Development Indicators, "Korea (Republic of)").

2. South Korea Changes in Production and Consumption

2.1. South Korea Changes in Production

From years to years, South Korea had experienced many major changes in its

domestic industries. Their major productions are: steel, automotive, and electronics

(Thomas White Global Investing, "Country Profile: South Korea"). The changes in

productions will be explained in a brief timeline below.

Early in 1970s, South Korea was producing its own armaments with an elaboration of

Vietnam (U.S. Library of Congress, "South Korea - Industry"); it includes the production of

“M-16 rifles, artillery, ammunition, tanks and other military vehicles” (U.S. Library of

Congress, "South Korea - Industry").

After that, in 1970s to 1980s, South Korea had been the leader in producing ships

(U.S. Library of Congress, "South Korea - Industry"); such as “oil supertankers, and oil-

drilling platforms” (U.S. Library of Congress, "South Korea - Industry").

During the year of 1970, they also produced chemicals from raw materials to support

“textile, plastic, synthetic rubber, rubber shoe, and paint factories” and self-supplied

themselves with the chemicals (U.S. Library of Congress, "South Korea - Industry").

Then in 1980s, South Korea was moving its industries into producing and exporting

“automobiles and automotive parts” (U.S. Library of Congress, "South Korea - Industry").

Beside automobiles, South Korea also produced and exported “textiles and footwear”

in 1980 (U.S. Library of Congress, "South Korea - Industry"). Then, finally, in 1989, South

Korea had been producing electronics such as “color televisions, videocassette recorders,

microwave ovens, radios, watches, personal computers, and videotapes” (U.S. Library of

Congress, "South Korea - Industry").

2.2. South Korea Changes in Consumption

Figure 8 (Kim, "Changing Lifestyles and Consumption Patterns of the South Korean Middle Class and New Generations")

Ever since 1980s, South Korea has been experiencing an inequality for its distribution of income

(Kim, "Changing Lifestyles and Consumption Patterns of the South Korean Middle Class and New

Generations"). Therefore, there were significant differences of the looks between the rich and the poor

(Kim, "Changing Lifestyles and…"). Thus, Koreans always think that “you are what you wear” (Export

Entreprises SA, "Country profile South Korea - Consumption trends"); and thus, it makes people tend to

follow the latest trend (either from famous singers, artists, etc), until now (Export Entreprises SA,

"Country profile South Korea - Consumption trends"). Because of this reason and habits, they tend to

increase their consumerism level from year to year (see Figure 8).


It also was not possible for Koreans to spend more than their real income in some years (since

their real income was decreasing from 1991 to 1997), especially in 1993, 1995, and 1996 (Kim,

"Changing Lifestyles and…"). But, in 1997, there was a currency crisis and the government chose to buy

all of the Koreans gold jewelry for government bonds (Kim, "Changing Lifestyles and…"); thus, the

government was able to buy two billion dollars (Kim, "Changing Lifestyles and…"). Therefore, they were

able to stimulate the economy well after the financial crisis in 1998, and return the GDP rate to normal

(through government big spending) in 1999 ("South Korea GDP - real growth rate," 2010).


Figure 10 is about the percentage of Koreans possessing durable goods from 1970 to 1990. It is

showing that the Koreans are becoming addicted to urban products and modernism (Kim, "Changing

Lifestyles and…"). The figure above, however, can still expand to the future; and therefore, there should

be a limit. Thus, the figure above can also show that someday the prices of those durable goods will

jump high (Kim, "Changing Lifestyles and…"); since they were booming since 1985 as the level of

consumerism was going up rapidly since 1980s (Kim, "Changing Lifestyles and…").


Figure 11 is comparing between ‘traditional’ or farm goods with modern goods, owned by the

households in South Korea since 1970 to 1997. The big different of percentages of owned urban goods

compared with farm goods are significant (around 6 : 1). It shows that Koreans prefer modern goods

more than ‘traditional’ goods because of the instance satisfactions and pleasure that farm goods cannot

give (Kim, "Changing Lifestyles and…").


Figure 12 is showing about the percentage of expenditures by the Koreans in various categories. It

can be seen that Koreans spend so highly for education and outside tuition fees (Kim, "Changing

Lifestyles and…"). If it is not a surprise, then the next on the list could. Koreans prefer to spend their

money on clothes, parties, and entertainment/ leisure/ travel, rather than their stomach.

But, Figure 12 (which was updated from the early 2000s) data does not stay forever.

Figure 13 (Export Entreprises SA, "Country profile South Korea - Consumption trends")

Figure 13 is the most recent data which is made in 2010 and taken from Korean Statistical

Information Service (KOSIS). That figure has shown a significant change in expenditure percentage

between early 2000s and 2010. Education has become cheaper, and so does for clothes and recreations,

or perhaps Koreans can spend more wisely now. Unfortunately, this does not work for food as the

expense rate increased to 25% from 8.9%.

The wise spending may have occurred because of the excess use of credit cards before 2002 (Export Entreprises SA, "Country profile South Korea - Consumption trends"). In 2002, there was a credit card crisis in Korea and it made the financial authority to monitor Korean consumers, strictly, in using credit cards (Export Entreprises SA, "Country profile South Korea - Consumption trends"). From Figure 1, it can be seen that in 2002, South Korea GDP was experiencing a boom but then it recessed in 2003 (“South Korea GDP - real growth rate,” 2010); because consumers were scared to spend.

Affects on South Korea Government Policy and Decisions

After the success of the “Fifth Five-Year Economic and Social Development Plan” (1982 – 1986) which focused on chemical industries, Park government continued to the “Sixth Five-Year Economic and Social Development Plan” (U.S. Library of Congress, "The Government Role in Economic Development"); which accelerate the movement to liberal country and remove the trade barriers of South Korea (U.S. Library of Congress, "The Government Role in Economic Development"). Finally, the “Seventh Five-Year Economic and Social Development Plan” was focused on the technology used in South Korean industries (U.S. Library of Congress, "The Government Role in Economic Development").

MLA-Styled-Bibliography

Charles, Harvie and Mosayeb Pahlavani. "Sources of Economic Growth in South Korea: an application of the ARDL analysis in the Presence of Structural Breaks - 1980-2005 #." Paper. n.d.

Export Entreprises SA. "Country profile South Korea - Consumption trends." November 2010. La Poste. 22 November 2010 <http://www.laposte-export-solutions.co.uk/uk/markets/country-profiles/south-korea/consumption-trends>.

"Human Development Index Statistics." 2008. Slide Share. 22 November 2010 <http://www.slideshare.net/cho.hyunwoo/human-development-index-statistics>.

International Human Development Indicators. "Korea (Republic of)." 2010. International Human Development Indicators. 22 November 2010 <http://hdrstats.undp.org/en/countries/profiles/KOR.html>.

Kim, Seung-Kuk. "Changing Lifestyles and Consumption Patterns of the South Korean Middle Class and New Generations." Chua, Beng Huat. Consumption in Asia: Lifestyle and Identities (The New Rich in Asia). London: Routledge, 2003. 61-82.

Ministry of Environment. "History of MOE." Ministry of Environment. 23 November 2010 <http://eng.me.go.kr/content.do?method=moveContent&menuCode=abo_his_history>.

Setser, Brad. "This Doesn't Look Good: Taiwan, Korea and China Exports Tank." Japan Focus. 22 November 2010 <http://www.japanfocus.org/-Brad-Setser/3016>.

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Thomas White Global Investing. "Country Profile: South Korea." 2010.

U.S. Library of Congress. "Economic Development." Country Studies. 22 November 2010 <http://countrystudies.us/south-korea/15.htm>.

—. "South Korea - Industry." Country Studies. 22 November 2010 <http://countrystudies.us/south-korea/50.htm>.

—. "The Government Role in Economic Development." Country Studies. 22 November 2010 <http://countrystudies.us/south-korea/47.htm>.

Zhi, Lin. "S Korea stands among world's highest-level fiscal reserve holders: IMF." 7 9 2010. XINHUANEWS. 22 9 2010

<http://news.xinhuanet.com/english2010/business/2010-09/07/c_13482842.htm>.

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South Korea Economy