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South Korea: Economic Overview
Economic history and projections:
The Gross Domestic Product (GDP) in South Korea expanded 0.80 percent in the first quarter of 2013 over the previous quarter. GDP Growth Rate in South Korea is reported by the Bank of Korea. Historically, from 1970 until 2013, South Korea GDP Growth Rate averaged 1.73 Percent reaching an all time high of 6.80 Percent in March of 1988 and a record low of -7 Percent in March of 1998. South Korea relies mainly on exports for their economy. After the Asian financial crisis in late 90’s, South Korea’s economy grew at an average 1.1 percent on a quarter over quarter basis, mainly because of exports, which is half of its GDP. South Korea is the world's leading producer of displays and memory semiconductors and the second largest shipbuilding producer. Yet, the high reliance on exports together with a limited domestic market and a rapidly aging population are the main threats to the future growth.
GDP real growth rate: 2.7%
GDP -per capita (PPP): $32,400
population below poverty line: 15%
Labor force: 25.18 million
unemployment rate: 3.8%
Inflation rate: 2.2%
revenues: $271.9 billion
expenditures: $249.2 billion
GDP - composition by sector:
rice, root crops, barely, vegetables, fruit; cattle, pigs, chicken, milk, eggs; fish
The chaebols, Korean conglomerates such as Hyundai, Samsung and Daewoo and LG3, play an important role in the Korean economy. In 1995, the four companies had produced 9% of the country’s GDP.1 Although economic reforms have curtailed some of their dominance, these multinationals still play a powerful role in the Korean economy.
Like Japan, South Korea also has small businesses which seem to complement the large corporations. Small and medium enterprises, (SMEs) employ more than 80% of the work force.2
South Korea’s main trading partner is China which is the recipient of 21.7% of Korean exports and accounts for over 17.7% of its imports. The second largest export destination is the United States, which accounts for 11.0% of the total exports, and Japan is the second largest import source, which account for 14.0% of the total imports.3
President - Park Geun-hye since 2013
Prime Minister - Jung Hong-won
Capital city - Seoul
South Korea is a republic, where a democratically elected President serves as the head of state. The Prime Minister, serving as the head of the government, is appointed by the President with the consent of the National Assembly.
The National Assembly is the unicameral legislative body and its members are elected by the citizens.
The government plays an active role in promoting trade and economic growth. In 2001, then President Park Chung-hee led an export-oriented industrialization drive which led to exports which totaled 37.7% of its GDP.4
Corporate income tax rates range from 13% to 25%. Companies are also subject to a residence surtax applied at a rate of 10% of corporate tax liability. Personal income tax rates range from 8% to 35%. A residence surcharge of 10% of income-tax liability is also applied. The value-added tax (VAT) rate is 10%.5
The Korean government has released a budget of 291.8 trillion won in 2010, a 2.5% increase from 2009.6
Development of Electronics and Automobiles: With major multinational corporations such as Samsung and Hyundai, the South Korean economy is geared towards exporting automobiles in electronics. Its strong export growth demonstrates that Korean industries are making inroads into markets with newly forming classes such as China, India and Mexico.7
Openness to Trade: South Korea’s economy is dependent on foreign trade. 52% of South Koreas GDP is from exports. South Korea’s import commodities are machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals and plastic. It trades mostly with China, the U.S. and Japan.
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Restructuring of the Financial Sector: Standard and Poor’s has rated Korea’s commercial banks as “stable,” and has pointed to potential for an improvement in the ratings. In addition to restructuring and re-privatizing banks, it has also promoted greater competition and opened its bank to foreign ownership. In 2004, Citigroup became the first major global bank to complete the purchase of a Korean bank.8
Strong Competition: Although Korean boasts a strong automotive and electronic sector, it must compete with similar goods coming from Japan. In addition, Korean SMEs which supply parts to large Korean corporations must also compete with cheap imports coming from China.
Need for Further Corporate Restructuring: Although South Korea has made progress in restructuring the chaebols, there are still concerns over the cooperation between the subsidiaries.In addition to their problems restructuring chaebols, Korea has been reluctant to push for efforts to restructure SMEs. Government support of SMEs, including guarantees for SME credit, has prevented the creation of an efficient market mechanism which would eliminate unproductive firms.
U.S., South Korea Relations
Hosted the 2010 G-20 Summit, 2011 Fourth High-Level Forum on Aid Effectiveness, and the 2012 Nuclear Security Summit.
Committed member of Proliferation Security Initiative (PSI) and the Global Initiative to Combat Nuclear Terrorism (GICNT).
A lot of South Korean’s come to the U.S. as foreign exchange students.
South Korea is the U.S.’s 7th largest trading partner
South Korea and North Korea Relations
On Monday April 15 2013, North Korea threatened South Korea that it would give no notice of when they will attack with nuclear weapons. They also cut off trade with South Korea. Then in June 2013 they were going to hold diplomatic meetings to resolve the issues. However, on Tuesday June 11, North Korea scrapped the meetings. They couldn’t agree on who would delegate the meetings.
Research: Casey Shannon, Research Assistant, under the supervision and coordination of
Dr. Gerard Janco, President, Eurasia Center/Eurasian Business Coalition.