ECONOMY
The Republic of Korea's economic growth over the past several decades has been spectacular. Per capita GNP, only $100 in 1963, is approaching $20,000. South Korea is now the United States' seventh-largest trading partner and is the 13th-largest economy in the world.
In the early 1960s, the government of Park Chung Hee instituted sweeping economic policy changes emphasizing exports and labor-intensive light industries, leading to rapid debt-financed industrial expansion. The government carried out a currency reform, strengthened financial institutions, and introduced flexible economic planning. In the 1970s Korea began directing fiscal and financial policies toward promoting heavy and chemical industries, consumer electronics, and automobiles. Manufacturing continued to grow rapidly in the 1980s and early 1990s.
In recent years, Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. Korea bounced back from the 1997-98 Asian financial crisis with some International Monetary Fund (IMF) assistance, but based largely on extensive financial reforms that restored stability to markets. These economic reforms, pushed by President Kim Dae-jung, helped Korea maintain one of Asia's few expanding economies, with growth rates of 10% in 1999 and 9% in 2000. The slowing global economy and falling exports slowed growth to 3.3% in 2001, prompting consumer stimulus measures that led to 7.0% growth in 2002. Consumer over-shopping and rising household debt, along with external factors, slowed growth to near 3% again in 2003. Economic performance in 2004 improved to 4.6% due to an increase in exports, and remained at or above 4% in 2005, 2006, and 2007.
Economists are concerned that South Korea's economic growth potential has fallen because of a rapidly aging population and structural problems that are becoming increasingly apparent. Foremost among these structural concerns is the rigidity of South Korea's labor regulations, the need for more constructive relations between management and workers, the country's underdeveloped financial markets, and a general lack of regulatory transparency. Restructuring of Korean conglomerates ("chaebols") and creating a more liberalized economy with a mechanism for bankrupt firms to exit the market are also important unfinished reform tasks. Korean policy makers are increasingly worried about diversion of corporate investment to China and other lower wage countries.
North-South
Economic Ties
Two-way trade between North and South Korea, legalized in 1988, hit almost $1.35 billion in 2006, much of it related to out-processing or assembly work undertaken by South Korean firms in the Kaesong Industrial Complex (KIC). A significant portion of the total also includes donated goods provided to the North as humanitarian assistance or as part of inter-Korean cooperation projects. According to R.O.K. figures, about 60% of the total trade consisted of commercial transactions, much of that based on processing-on-commission arrangements. The R.O.K. is North Korea's second-largest trading partner.
Since the June 2000 North-South summit, North and South Korea have reconnected their east and west coast railroads and roads where they cross the DMZ and are working to improve these transportation routes. North and South Korea conducted tests of the east and west coast railroads on May 17, 2007 and began cross-border freight service between Kaesong in the D.P.R.K. and Munsan in the R.O.K. in December 2007. Much of the work done in North Korea has been funded by South Korea. The west coast rail and road are complete as far north as the KIC (six miles north of the DMZ), but little work is being done north of Kaesong. On the east coast, the road is complete but the rail line is far from operational. Since 2003, tour groups have been using the east coast road to travel from South Korea to Mt. Geumgang in North Korea, where cruise ship-based tours had been permitted since 1998.
As of August 2007, 65 South Korean firms were manufacturing goods in the KIC, employing nearly 22,000 North Korean workers. Most of the goods are sold in South Korea; a small quantity is being exported to foreign markets. Ground was broken on the complex in June 2003, and the first products were shipped from the KIC in December 2004. Plans envision 250 firms employing 350,000 workers by 2012.
R.O.K.-organized tours to Mt. Kumgang in North Korea began in 1998. Since then, more than a million visitors have traveled to Mt. Kumgang.
Nominal GDP: 2005, $787.5 billion; 2006 est., $897.4 billion.
GDP growth rate: 2004, 4.7%; 2005, 4.0%; 2006 est. 5.0%; 2007 est. 4.8%.
Per capita GNI (2006): $18,392.
Consumer price index: 2004, 3.6%; 2005, 2.8%; 2006, 2.2%.
Natural resources: Limited coal, iron ore, limestone, kaolinite, and graphite.
Agriculture, including forestry and fisheries: Products--rice, vegetables, fruit, root crops, barley; cattle, pigs, chickens, milk, eggs, fish. Arable land--17% of land area.
Industry: Types--Electronics and electrical products, telecommunications, motor vehicles, shipbuilding, mining and manufacturing, petrochemicals, industrial machinery, steel.
Trade (2007 est.): Exports--$386.6 billion f.o.b.: electronic products (semiconductors, cellular phones and equipment, computers), automobiles, machinery and equipment, steel, ships, petrochemicals. Imports--$359.5 billion f.o.b.: crude oil, food, machinery and transportation equipment, chemicals and chemical products, base metals and articles. Major markets (2006)--China (21.3%), U.S. (13.3%), Japan (8.1%), Hong Kong (5.9%). Major suppliers (2006)--Japan (16.8%), China (15.7%), U.S. (11%), Saudi Arabia (6.7%), U.A.E. 4.2%.
