South Korea Economy

South Korea ranks among the wealthiest nations in the world with an economy that ranks 13th in by nominal GDP and 30th by purchasing power parity (PPP).

From the 1960s through the late 1990s, South Korea had one of the world’s fastest growing economies. This growth is sometimes referred to as the “miracle on the Han River.” The nation followed a cultural policy of rigorous education for the population, which paid off when Korea became one of the world’s most well-known industrial powers and technology hubs.

South Korea ranks among the wealthiest nations in the world with an economy that ranks 13th in by nominal GDP and 30th by purchasing power parity (PPP).

From the 1960s through the late 1990s, South Korea had one of the world’s fastest growing economies. This growth is sometimes referred to as the “miracle on the Han River.” The nation followed a cultural policy of rigorous education for the population, which paid off when Korea became one of the world’s most well-known industrial powers and technology hubs.

South Korea has few natural resources and suffers from overpopulation. This has forced South Korea to import a great deal of its basic needs and raw materials and to use these to produce finished goods for export. As a result, in 2012, South Korea was the seventh largest exporter and importer in the world. South Korea is also heavily reliant on energy imports.

South Korea avoided a recession during the global financial crisis in 2008, though it did see a contraction of its overall GDP. This was largely due to the economic hardships of other nations that would typically buy Korea’s export goods. South Korea has free trade agreements with both the United States and the European Union.

It is a member of the Organization for Economic Co-operation and Development (OECD) and the G-20, and is the only developed country in the group of Next Eleven countries.

Economic History

Humans have populated the Korean peninsula since at least 8,000 B.C. Early inhabitants developed agriculture throughout much of the southern portion of the peninsula.

The Bronze Age arrived in Korea around 900 B.C. Aside from weapons and armor; Korean metallurgists became quite skilled at a variety of functional and useful items of immense beauty. The Iron Age soon followed around 400 B.C.

Korea passed through many rulers in its early history. The peninsula was often divided into multiple pieces and pulled between different factions. Agriculture and artisanship remained important to the economy throughout these periods.

Several dynasties existed in different parts of Korea. Most of them closely followed Chinese culture, politics, and economic practices. Neo-Confucianism played a large role in shaping the social and economic policies of many of the various Korean states throughout much of its history. A focus on the importance of education led to the establishment of academic institutions and the development of arts, dance, calligraphy, and other creative arts. Korea also developed its own alphabet in 1446.

Korea followed a predominantly feudal social system throughout most of its history. However, unlike most Western countries, Korea had a fairly well established middle-class during this period, comprised of artisans and scholars. Korea also benefited from its location, serving as an important trade and shipping route.

Unfortunately, this also made Korea a target. In the 16th century, several invasions from Japan took a heavy toll on the population and economy, while the Manchus invaded in the 17th century. Cultural invasions also began, as Western powers began to spread their products and ideologies. Korea recoiled in a manner similar to Japan, outlawing Christianity and expelling or executing foreigners. Korea remained an isolationist state until the middle of the 19th century, when military conflicts forced it to confront the realities of a changing world and open its borders to trade with Japan and the United States.

By the late 19th century, Korea found itself a bargaining point between China and Japan following the Sino-Japanese War. Japan effectively annexed Korea in 1910, suppressing much traditional Korean culture and for the first time building Western style roads and early industrial facilities. Most of these improvements were made to benefit Japan and exploit Korean resources.

In 1937, after years of uprisings and a second Sino-Japanese War, Japan attempted to annihilate Korea. Most of its assets were annexed, numerous cultural items were removed, and most aspects of Korean culture were outlawed. Koreans were forced to support the Japanese war movement throughout World War II.

At the conclusion of the war, the United States and Russia ejected occupying Japanese forces and established two spheres of influence, similar to the east-west divide in Germany. As the Cold War warmed up in the 1950s, North Korean forces pushed with military force beyond their prescribed boundaries into South Korea. This led to the Korean War, which ultimately ended in a stalemate.

Following the Korean War, South Korea was one of the poorest nations in the world. The US, in order to consolidate its position in South Korea and prevent a further expansion by the Soviets, supported a succession of oppressive, autocratic leaders in South Korea. It also contributed heavily to infrastructure and business growth and maintained military bases that brought significant revenues into the South Korean coffers.

The country eventually transitioned to become a capitalist democracy in 1987. Following this transition, South Korea’s economy rapidly grew. By the 2000s, Korea was considered a developed economy.

Current Economic Situation

Korea’s economy is largely export driven. Its rapid expansion through the last decades of the 20th century relied heavily on an outward-facing economic policy that it continues to follow to this day. Like most industrialized nations, South Korea’s economy contracted following the global recession in 2008. Nevertheless, the South Korean economy was able to avoid a deep recession thanks to timely stimulus measures and strong domestic consumption of products that offset losses in exports. By 2010, South Korea had made a strong economic rebound, with growth at 6.1 percent.

However, the outward-facing nature of the economy has its drawbacks, as well. Long-term expansion since the recession has been slow, as South Korea relies on the markets of its export partners who are, in many cases, still recovering.

Although best known for its cars and electronics, South Korea is a dominant force in the world’s shipbuilding. In fact, it controlled 50.6 percent of the global market for shipbuilding in 2008. Technology and telecommunications make up the largest portion of South Korea’s export products, followed closely by automobiles. Refined petroleum, arms, mining, construction, and tourism make up other large portions of the economy.

Economic Forecast

Due to lagging global demand, South Korea’s exports will recover slowly. Unfortunately, exports account for more than half of the South Korean economy. Business confidence remains high overall, and consumer confidence appears to be inching up. However, large personal debts, which may be as high as 85% of GDP, will limit private consumption due to limited buying power.  The GDP forecast is to expand by 3.2 percent in 2015 and 3.5 percent in 2016.