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Korean Economy Evolution.ppt
1. Korea Foundation
Special Lectures on Korea 2015
Jung Soo SEO
KAC, Keimyung University
Daegu Korea
October 22, 2015
Nazarbayev University
2. On the 70th Anniversary of Korea’s independence from Japanese
Annexation, NSO released some interesting statistics for Korea
2
Source: statistics.kr
Population('15, estimation) 50,617,045
ForeignReserve ('15.07)(US$
million)
370,822.3
GDP(current
prices)('14)(BillionWon)
1,485,078.0
Goods Exports('14) (US$
million)
572,664.7
GDP Percapita (current
prices)('14)(0,000 Won)
2,968.0 Goods Imports('14) (US$ million)525,514.5
Life Expectancy ('13) 81.94
No of Automobile
Registration('14)
20,117,955
Internet Users (per100)
('14)(%)
83.6
Current Account Balance
('15.06) (US$million)
12,186.5
3. These figures place Korea in 2014 as
7th largest trading countries by exports &
imports (IMF WEO DB)
13th largest economy by GDP (IMF WEO DB)
13th highest internet penetration ratio (World
Bank WDI DB)
27th largest country by population size (World
Bank WDI DB)
31th richest economy by GDP per capita (IMF
WEO DB)
3
4. Rank Country GDP(US$M) Rank Country GDP(US$M)
1
United
States
17,418.93 11 Canada 1,788.72
2 China 10,380.38 12 Australia 1,444.19
3 Japan 4,616.34 13 Korea 1,416.95
4 Germany 3,859.55 14 Spain 1,406.86
5
United
Kingdom
2,945.15 15 Mexico 1,282.73
6 France 2,846.89 16 Indonesia 888.648
7 Brazil 2,353.03 17 Netherlands 866.354
8 Italy 2,147.95 18 Turkey 806.108
9 India 2,049.50 19 Saudi Arabia 752.459
10 Russia 1,857.46 20 Switzerland 712.05
4
Source: IMF World Economic Outlook Database
5. 1 Luxembourg 111,716.27 21 New Zealand 43,837.29
2 Norway 97,013.26 22 United Arab Emirates 43,179.78
3 Qatar 93,965.18 23 Kuwait 43,103.34
4 Switzerland 87,475.46 24 Hong Kong SAR 39,871.10
5 Australia 61,219.16 25 Israel 36,990.98
6 Denmark 60,563.62 26 Brunei Darussalam 36,606.83
7 Sweden 58,491.47 27 Japan 36,331.74
8 San Marino 56,820.02 28 Italy 35,823.22
9 Singapore 56,319.34 29 Spain 30,278.35
10 United States 54,596.65 30 Bahrain 28,271.75
11 Ireland 53,461.97 31 Korea 28,100.72
12 Netherlands 51,372.96 32 Cyprus 26,115.46
13 Austria 51,306.67 33 Malta 24,876.20
14 Iceland 51,261.88 34 Saudi Arabia 24,454.02
15 Canada 50,397.86 35 The Bahamas 24,034.19
16 Finland 49,496.72 36 Slovenia 24,019.25
17 Belgium 47,721.59 37 Taiwan Province of China 22,597.73
18 Germany 47,589.97 38 Portugal 22,130.49
19 United Kingdom 45,653.41 39 Greece 21,653.08
20 France 44,538.15 40 Trinidad and Tobago 21,310.83
5
Source: IMF World Economic Outlook Database
6. It is also indicated that
Korea’s GDP in 2014 is 31,108 folds bigger than
that in 1953
GDP per capita 424 times larger than that in 1953
Korea’s exports (merchandise) in 2014 was 22,907
times larger than that in 1956
Korea’s imports (merchandise) in 2014 was 1361
folds bigger than that in 1956
Thus making Korea’s external merchandise trade
2672 times larger that in 1956
8
7. But Korea is small in size of area
with a slightly over 100,000km2 of land area, ranked 109th in
size
Smaller than Victoria but 1.5 times bigger than Tasmania
Arable land is roughly 17% of the area
Not well endowed with natural resources
With a very high imported energy dependence ratio of 95.6%
9
Country Size by Area ('14)
(km2
)
100,284
Import Energy Dependence
('15.04)(%)
95.6
Population Density ('13)
(persons/㎢)
515.9 Arable Land('14)(ha) 1,691,113
Source: Statistics Korea
8. Still confronting with hostile North Korea
The devastated economy during the Korean War
(1950-1953)
Short Lived but extremely bloody
Life loss(incl. deceased, casualties & missing): 2.81 million
lives
S. Korea: 650,000 & UN: 150,000
N. Korea: 800,000 & Chinese: 1230,000
Refuges: more than ½ total population
Highly Destructive to industrial production capacity
42% of S. Korea’s manufacturing
60% of N. Korea’s industries
And surrounded with super powers: US, China,
Japan and Russia
10
10. Korean Economy is
The Miracle on the Han River (World Bank, 1993)
Asia’s Latest Miracle(Times, 2011.11.15)
How did Korea achieve such a miraculous
economic growth?
12
14. Political Leadership Committed to Economic
Development
Came into power: 1961 Military Coup
Government-Led Economic Development
1st Five-Year Economic Development Plan(FYEDP) (1962-1966)
& 2nd FYEDP
Average Economic Growth Rate (1962-1971): 9.9% p.a.
Growth Strategy
Outward Looking & Export Promotion
Manufacturing; Labor Intensive manufacturing
16
15. Policies and Incentives
How to make export competitive?
“Getting Prices Right”
Unified Exchange Rate System (1961)
Devaluation of Korean Currency by 50% (1964)
Tax Concessions
Import Liberalization
Free import of materials and equipment used for export activities
Negative Import List System (1967)
Generous waste allowance for export business
17
16. Policies and Incentives
How to make export competitive?
“Getting Prices Right”
Unified Exchange Rate System (1961)
Devaluation of Korean Currency by 50% (1964)
Tax Concessions
Free import of materials and equipment used for
export activities
Generous waste allowance for export business
18
17. Policies and Incentives
Non-Pecuniary
Export Target
Monthly Export Meeting convened by President
Social Respect
Normalization of Diplomatic Relationship with
Japan (1965)
Foreign Capital
Export Market
Source of Advanced Technology
19
19. 1972-1981 Average Growth Rate: 9.0% p.a.
3rd (1972-1976) and 4th (1977-1981) Five
Economic Development
Creating Comparative Advantage
Heavy Government Intervention
By promoting Heavy and Chemical Industries
Iron & Steel, Non-Ferrous Metal, Shipbuilding,
Petrochemical, Machinery and Electrical
Capital-Intensive & Energy-Intensive
21
20. Backgrounds
Losing comparative advantage & Needs to Upgrade
Industrial & Export Structure
due to rapidly rising wages
Catching-up by ASEAN
Protectionist barriers against NIES’ export
Non-Economic and Political Reasons
The Nixon Doctrine (1969)
Koreanization of Korean Security: Withdrwal of US troops from
Korea
The fall of Vietnam (1975)
22
21. Policies Used
“Carrots and Sticks”
Government Subsidies and Tax Concession
Preferential & Policy loans to HCI
Negative interest rate, combined with higher
inflation rate
Easy excess to foreign capital with government
guarantee
Protection of HCI against import
2nd stage import substitution
23
22. Policies Used
“Carrots and Sticks”
Export Promotion by promoting large firms
Created General Trading Companies
Samsung (1975)
Highly Restrictive export target
1975: US$50 million; 1979: US$301 million
In returns for substantial rewards including cash subsidies
for export earnings
SMEs were discriminated
24
24. Five Year Economic Development changed
to Five Year Economic and Social
Development
6th (1982-1986) & 7th (1986-1991) FYESDP
Emphasizing Stability, Balance, Efficiency
Through Stable Prices, Openness, Competition, Social
Development, Social Welfare
Average Growth Rate 1982-1991: 10.2% p.a.
26
25. Backgrounds for Switch Over
Internal Pressure
Sectorial Imbalance and Social Inefficiency
Associated with HCI Drive & Moral Hazard
Socialization of Private Risk
Excessive Capacity with Lower Capacity Utilization: 20%
Political Instability
Assassination of President & 2nd Military Coup
Poor Harvest
High Inflation associated with Rapidly rising international oil and
resources prices
External Pressures
High International Interest Rate
Slowdown of Global Economy
27
26. General Policy Stance
To correct excesses and imbalances
From export earnings to enhanced international
competitiveness
By giving more private initiatives
Continuing liberalization
Unilateral Import Liberalization
Privatization of banks by selling government shares(1981 &
1983)
Retained the gov’t right to appoint CEOs of commercial banks
Privatization of Interest rate (1988)
Introduction of a negative list system for Inward FDI (1984)
28
27. Political Liberalization
June 29 Declaration of Democratization (1987)
1st Democratic Change of Government
Accompanied Massive Industrial Dispute & Outward FDI
Hyper Economic Growth (1985-1988): 11%
p.a.
Due to favourable external conditions: “3 Lows” or “3
Blessings”
Low International Interest Rate
Low Currency Value
Low International Oil and Resource Prices
29
29. 8th FYESDP (19912-1996)
Crisis Hit the Korean Economy (1997-1998) &
Massive Economic and Social Reforms were
Conducted
Average Growth Rate (1992-1996): 7.2% p.a.
Background
International Competitiveness Eroded
Due to fast rising wages
Growth of Nominal Wages: over 19% p.a.
Revaluation of Currency by 8.65% (1987-1989)
31
30. 8th FYESDP (1992-1996)
Background
Slowdown of the Economy
Consumption-led Growth
Current Account turned in deficit again
Further Acceleration of Globalization
Capital Account Liberalization
Korea Joined OECD in 1996
32
31. Crisis Hit the Korean Economy in 1997
Massive contraction of the Korean economy
By - 5.5%
The Value of Currency Plummeted
By 40% in1998, relative to that in 1997
Unemployment skyrocketed
Unemployment rate in 1998: 7%
2.6% (1997)
No of the unemployed in 1998: 1.49 million people
0.57million (1997)
33
32. Reforms conducted
Corporate sector reforms including Chaebols
Big deals
Public Sector
More Foreign firms’ investment
Increased FDI, especially M&As
Government-led Reforms
Reforms slowed down with a quick economic recovery
9.6% p.a. Growth Rate (1999-2000)
34
34. In the Post Asian Financial Crisis period: Globalization and
Regional Trading Agreement (RTAs)
Actively Pursuing Free Trade Agreements
Background
Substantial Slowdown of Korean Economy
Average Economic Growth Rate (2001-2014): 4% p.a
Slow Down of Population Growth and Aging
Average Population Growth Rate (2001-2014): 0.5%
People with 65 and Older: 13%
RTAs expanding rapidly,
esp. since the establishment of WTO(Jan1,1995)
604 RTAs Reported to WTO & 398 RTAs are being effective (January, 2015)
Free Trade Agreement (FTA): 220 (58%)
36
36. Korea’s FTA Status:
FTAs in force (11)
Chile, Singapore, EFTA(4), ASEAN(10), India, EU,
Peru, USA, Turkey, Australia, Canada
FTAs signed (5)
Columbia, Turkey, China, New Zealand, Viet Nam
38
37. 39
Chile April, 2004
Singapore March, 2006
EFTA(4 countries) September 2006 9(*EFTA: Switzerland, Norway, Iceland, Lichtenstein )
ASEAN(10 countries)
Goods Trade Agreementin June 2007, & Service Trade Agreement in
May 2005, Investment Agreement in September 2009 (*ASEAN 10
Countries)
India January, 2010
EU(28) July 2011 (EU 28 countries)
Peru Agust, 2011
USA March, 2012
Turkey (Base Agreement
&Goods Trade)
May, 2013
Australia December, 2014
Canada January, 2015
Columbia Signed Feb.21, 2013
Turkey(Service & Investment) Signed (provisional) July 2014
China June 1, 2015
New Zealand Signed (Provisional) December 11, 2014
Viet Nam December 10, 2014
Indonesia Negotiating 7 time since March 28, 2012
Korea-China-Japan Negotiating 6 times since November 20,2012
RCEP
Negotiating 6 times since November 20, 2012 At East Asia Summit
(*RCEP : Korea,China, Japan, Australia, New Zealand, ASEAN)
Suspension and
Resume
negotiation
Japan
Started Negotiation in December 2003 and Negotiation is in suspension in
November 2004; 9times meetings to resume the negotiation during 2008-
2012
In-Force (11
FTAs)
Signed(5)
In negotiation (3)
Source: Customs, Korea
38. 253,334 206,874 45.6% 40.1%
169,790 91,830 30.6% 17.8%
555,632 515,586
Import (%)
With FTA Partners
With FTA signed
Partners
Total Trade
Export (US
$ million)
Import
(US$
million)
Export (%)
40
39. Korea actively participated bilateral free trade agreement as well
as mega-regional trade agreement such as RCEP or TPP
Shifting Korea’s Trade Policy paradigm
Why?
To reduce costs associated with the Spaghetti Bowl Effect
Asia is the most active in Global Supply Chain Management
Need to help firms to improve efficiency in production
To counteract the possible trade diversion effect of mega-
trading blocs such as EU,NAFTA, MERCOSUR etc.
To Tone down regional security threats
Can Korea-Kazakhstan be Partners in the era of FTAs and Mega
FTAs?
41
41. How Did Korea Achieve it?
7.5% p.a. Economic Growth Rate (1953-2014)
With a fairer income distribution
Gini Coefficient: 0.344 (1965) => 0.307 (2012)
Significant Structural Changes
From Primary to Industry
From Light Manufacturing to Capital Intensive and Technology Intensive
Why?
Leaders Committed to Economic Growth and Development
Accountability and transparency in International Economic and Trade Policy
Outward Orientation
Globalization through a main level of openness
Strategic, Pro-active Policy makings
Competitive Macroeconomic Policy
Promoting Competition
43
53. 55
Source: kita.net
Products (SITC 2 digit) Imports Growth Rate (%)
Total 560,771 209.9
1 33 Petroleum and Petroleum Products 372,193 -
2 67 Steel and Iron 95,808 0.1
3 52 Inorganic Chemicals 72,228 2.9
4 68 Non-ferrous Metal 13,022 5.0
5 29
Non specified Unprocessed meat and vegeta
bles
6,948 -0.1
6 89 Miscellaneous n.e.s 155 75.2
7 59 Chemical Products, n.e.s. 137 -54.7
8 77 Electrical Apparatus and Machinery 80 -30.2
9 26 Textile and Textile Waste 49 -
10 74 Industrial Machinery and Equipment 46 -
Source: kita.net
54. Products(SITC2 digit)
Exports (US’0
00)
Growth Rate (
%)
Total 906,958 268.6
1 78 Automobile 388,723 267.4
2 57 Plastics(Materials) 62,270 34.1
3 76 Communication and Recording Equipment 61,692 52.3
4 77 Electrical Machinery and Equipment 53,077 131.2
5 87
Other Scientific and Control Apparatus and
Equipment
46,981 32.6
6 72 Special Industrial Machinery 46,832 28.3
7 67 Steel and Iron 36,308 108.7
8 74 Industrial Machinery and Equipment 35,129 68.8
9 82 Furniture, Bedding, Mattress etc. 18,418 -4.2
10 09 Other Food and Food stuffs 16,906 6.2
56
Source: kita.net
55. 57
Source: kita.net
In total , US$ 2.45 billion
Finance & Insurance
(29.1%)
Construction (17.1%)
Manufacturing (15.6%)
Realty and Lease (11.0%)
Industry& Sectors InvestedAmount(US$'000) Share (%)
Finance & Insurance 712,062 29.1%
Construction 418,546 17.1%
Manufacturing 380,832 15.6%
Reality and Lease 268,457 11.0%
Mining 219,120 9.0%
Electricity, Gas and Water 156,039 6.4%
Publishing, Broadcasting and Information Services 141,268 5.8%
Wholesale and Retails 65,730 2.7%
Transportation 52,279 2.1%
Art, Sports and Leasures 23,103 0.9%
Argiculture, Foresty and Fishery 5,508 0.2%
Hotel and Restaurants 2,088 0.1%
Special Scientific and Technology Services 2,024 0.1%
Total 2,447,216
56. Economic partnership between Korea and
Kazakhstan
In trade and FDI: getting stronger but remained
less than its potential
Why?
Lack of mutual understanding
Other reasons?
How?
58