STRUCUTURE OF THE ECONOMY
According to World Bank estimates, in 2003,
agriculture accounts for 3.6% in total GDP, while industry and services had a share of 36.4% and 60% respectively. Similarly, maximum number of labour force was employed in services 72.1%. Agriculture employed 8.8% and industry 19.1% of country's work force. Since the early 1960s, South Korea has achieved an incredible record of growth and integration into the high-tech modern world economy. The Asian financial crisis of 1997-99 exposed longstanding weaknesses in South Korea's development model, including high debt/equity ratios, massive foreign borrowing, and an undisciplined financial sector. Growth plunged to a negative 6.6% in 1998, then strongly recovered to 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 had stalled. Led by consumer spending and exports, growth in 2002 was an impressive 6.2%, despite anemic global growth, followed by moderate 2.8% growth in 2003. In 2003 the National Assembly approved legislation reducing the six-day work week to five days.
Real value added by manufacturing rose by an annual average of 6.9% in 1997-2001, faster than the real average annual growth rate of 4.1% for the economy as a whole. Instead, the developments in manufacturing reflect the fact that hitherto neglected areas of the services economy have been catching up fast. One sign of this has been the rise in employment in the services sector. Between 1997 and 2001 the share of services in employment rose from 66% to 70% of the total, while that in manufacturing fell from 23% to 19.5%.
Expenditure on GDP is characterized by an extremely high proportion of gross fixed investment, mainly by the private sector and, until the end-1997 financial crisis, mainly through bank financing. The share of gross fixed capital formation in GDP averaged just fewer than 30% in 1997-2001.
The figure would doubtless have been even higher, but for the sharp fall-off in business investment in the recession year of 1998.
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Companies, especially semiconductor firms, undertook much of the investment growth in the 1990s in the export boom years of 1994-95.
Main agriculture products are rice, root crops, barley, vegetables, fruit; cattle, pigs, chickens, milk, eggs; fish. Main Industries are electronics, telecommunications, automobile production, chemicals, shipbuilding, steel
CHALLENGES FACING KOREA
The key long-term challenge is to continue the rapid convergence to the average income level in the OECD area by accelerating productivity growth as inputs of labour and capital slow. The government's emphasis on maintaining high growth is reflected in the recently established goal of doubling per capita income from $10 000 to $20 000, although the time frame is unspecified. Also, there is considerable scope for convergence to sustain high growth, as Korean labour productivity (per hour worked) is far less than high-income OECD average.
Much like other high-income countries,
maintaining macroeconomic stability in the face of spending pressures stemming from exceptionally rapid population ageing and developing a social safety net, are some of the long-term challenges.
Another challenge is to ensure that the labour market functions effectively by encouraging more co-operative and favourable industrial relations, enhancing employment flexibility and limiting dualism in the labour market, which has negative implications for equity.
Further, it is essential to continue the reform agenda launched after the 1997 crisis. Also, it is essential to make competitive pressure stronger by overcoming the regime of extensive government intervention in the economy, improving competition policy. Given the role played by international trade and foreign direct investment in Korean success, continuing with the policy of openness will be justifiable.
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