Economy of South Korea

Table of contents

1. Introduction

2. Economy of South Korea
Hard-working Workforce
Power of Conglomerates
Small and Medium-sized Firms
Social Cohesion
Tax System

3. Political Situation

4. Conclusion

5. Bibliography

1. Introduction

The division of Korea into South and North following the Korean War in 1950-1953, left the countries devastated and their economy was completely destroyed. Both of the new formed republics have chosen a specific approach to build the economy up. Now, 60 years later, the results of each strategy are clearly evident. What were the key factors that boosted the South Korea’s economy to the top position in the world? What measures can South Korea take to keep this front position also in the future? How could the different political development influence the economic prosperity of each country? These questions will be answered in the following pages. The primary sources used in this paper comprise four articles published by The Economist and The Wall Street Journal in 2011-2013, and mainly are not extra quoted.

2. Economy of South Korea

Around the world, South Korea illustrated an exemplary economical growth during the last decades. After the Korean War, the country was ruined both, environmentally and economically, and its income per head was comparable to the most miserable African regions. However, it has become more prosperous than an ordinary state in European Union since 1960. Based on purchasing-power parity, South Korea reached a gross domestic product per capita $32.800 in 2012^[1]. The Gini Index, which measures the degree of inequality in the distribution of family income in a country, dropped from 0.33 in 1980 to 0.28 in 1997, when the Asian financial crisis started. This development shows the positive results despite its climbing back to 0.31 in 2010.

South Korea also showed its economical power by overcoming the problems of unemployment that emerged in the global financial crisis. During the nine months in late 2008 and early 2009, it suffered a loss of 1.2m work positions. The following factors and measures helped to improve the unemployment rate on 3,2 % in 2012^[2]:

- Export of capital goods to China
- Initiation of a public-work program
- Introduction of an old-age pension plan
- Launching of earned-income tax credit.

Considering the economical development, Korea is predicted to draw level with America only in a few decades. Because of its continual progress, South Korea represents a model of growth for most developing countries that is characterised by strong work ethics, large conglomerates, small and medium-sized companies (SMEs), group collectivism and the tax system. A detailed view on this model is based on the analysis issued in an online edition of The Economist.^[3]

Hard-working Workforce

South Korea is well known for holding its leading position in amount of annual hours worked per worker worldwide. According the Organisation for Economic Co-operation and Development (OECD), Korea keeps a long-standing average of 2.200 working hours a year in comparison with Germany, which scores with about 1.400 hours of work annually.^[4] Furthermore, the quality of performance based on a high level of educational standards is even more essential.

Korea invests a significant part of GDP in education, primary in a private one. According to OECD, the families pay out a large share of educational costs by themselves, specifically 2.8% of GDP, where the government spends about 5% of GDP on education. Moreover, the expenses for the extracurricular activities can reach to 8% of the family income for a child.

Despite the excellent school performance and the fact that the Korean students rank on the top of international educational comparative tests provided by OECD, the graduates face up to unemployment. As a result, they accept a part-time job or decide for additional study. Additionally, about 38% of Korean women aged 25-54 remains at home to look after their children instead of working outside the home. As a solution to this situation might be considered the introduction of shorter working hours that would ensure more jobs and encourage women to engage with working activities regardless of their parental responsibility.

Power of Conglomerates

The conglomerates (Korean: 채볼; also chaebol) such as Samsung have an major technological and commercial impact on the Korean economy. They give a job to nearly 25% of Koran employees and generate more than 50% of the domestic output. In spite of their current profitability, the chaebols draggled the economic system during the Asian crisis in 1997-1998, when their rate of debt-to-equity rose to over 500%. Moreover, there are others issues concerning conglomerates that should be pointed out:

[...]

^[1] Central Intelligence Agency (2013) online

^[2] Central Intelligence Agency (2013) online

^[3] The Economist (2011) online

^[4] OECD (2014) online