Economy

South Korea has the 11th largest economy in the world (14th largest by purchasing power parity), and the 3rd largest in Asia, behind only Japan and China (4th behind China, Japan, and India by purchasing power parity). Its largest trading partner and export market today is China. As one of the East Asian Tigers, it achieved rapid economic growth through exports of manufactured goods. This is in sharp contrast to the stagnation of North Korea's economy, which has turned for the worse since the disintegration of the Soviet Union. South Korea's per capita GDP is now roughly 12 times that of North Korea.

Economic History

In the 1950s, South Korea was one of the poorest countries in Asia. At the end of World War II, the country inherited a colonial economic system designed solely for Japan's exploitative needs. Much of the country's infrastructure was destroyed during the Korean War that followed in 1950-1953. After the war, South Korea became heavily dependent on US aid.

Following the military coup led by General Park Chung-hee in 1962, South Korea embarked on a series of ambitious five-year plans for economic development. Emphasis shifted to foreign trade with the normalization of relations with Japan in 1965 and a subsequent boom in trade and investment. Rapid expansion, first into light and then heavy industries, in the 1960s and 1970s followed. During this period, the South Korean economy grew at an average annual rate of 8.6%.

This phenomenal growth is often called the 'Miracle on the Han River', the Han River being the main river that runs through the nation's capital and largest city, Seoul. In the 1980s and 1990s, growth continued as South Korea transformed itself from an exporter of mostly textiles and shoes into a major global producer of automobiles, electronics, shipbuilding and steel and later, high-technology fields such as digital monitors, mobile phones, and semiconductors.

Modern Economics

The South Korean model of encouraging the growth of large, internationally competitive companies through easy financing and tax incentives led to the dominance of the family-controlled conglomerates. These companies, known as chaebol, flourished under the support of the Park regime. Some such as Hyundai, Samsung and LG became global corporations. In 2004, through all of this combined, South Korea joined in the trillion dollar club of world economies.

Since the Asian financial crisis of 1997, however, the corporate landscape has changed considerably as a result of massive bankruptcies and government reforms. The crisis exposed longstanding weaknesses in South Korea's economy, including high debt/equity ratios, massive foreign borrowing, and an undisciplined financial sector. This led to two rounds of financial and industrial restructuring, in 1997 and again following the collapse of Daewoo in 1999. Daewoo's collapse has been recorded as one of the world's largest bankruptcies in history. By 2003, just over one-half of the 30 largest chaebol from 1995 remained.

Between 2003 and 2005, economic growth has moderated to about 4% per year. A downturn in consumer spending, attributed to massive personal credit card debt, was offset by rapid export growth especially to China. In 2005, the government proposed labour reform legislation and a corporate pension scheme to help make the labour market more flexible, and new real estate policies to cool property speculation.