South Korea joined the trillion-dollar club of world economies in 2004 after nearly 30 years of marked growth.
Since the 1960s, it has achieved an impressive record of expansion and global integration to become a hi-tech, industrialised economy. Four decades ago, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. South Korea is now among the world’s 20 largest economies.
Initially, a system of close government and business ties, including directed credit and import restrictions, made this success possible. The government promoted importation of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption. However, the Asian financial crisis of 1997-98 exposed long-standing weaknesses in the national development model, including high debt/equity ratios and huge short-term foreign borrowing. GDP plunged by 6.9 per cent in 1998, and then recovered by 9 per cent in 1999-2000.
Seoul adopted numerous economic reforms following the crisis, including greater openness to foreign investment and imports. Growth moderated to about 4-5 per cent annually between 2003 and 2007. With the global downturn in late 2008, GDP growth slowed to 0.2 per cent in 2009. In the third quarter of 2009, the economy began to recover, in large part due to export growth, low interest rates and an expansionary fiscal policy, and growth exceeded 6 per cent in 2010.
Forty years ago, South Korea’s GDP per capita was comparable to that of the poorest countries in Africa and Asia, but following the Korean war, the Republic of Korea was proclaimed in 1948, and partition helped the South Koreans develop the 13th-largest economy in the world and the third-largest in Asia.
The national economy’s long-term challenges include a rapidly ageing population, an inflexible labour market and overdependence on manufacturing exports to drive economic growth.