Following the Korean war, the South Korean government needed to rebuild the country. The government selected firms in targeted industries and gave them privileges to buy foreign currencies and to borrow funds from banks at preferential rates. It also erected tariff barriers and imposed a prohibition on manufacturing imports, hoping that the protection would give domestic firms a chance to improve productivity through learning-by-doing and importing advanced technologies. At this time the government was plagued by corruption which caused development to stagnate.
In 1961 a military coup led by General Park Chung Hee overthrew the government and installed a military dictatorship. The new government invested heavily in infrastructure as well as heavy industry. The government prioritised supporting businesses which were export-focused as well as developing relationships with new markets.
In the following decade per capita output doubled, and South Korea became an industrialized country: from 1960/62 to 1973/75 the agriculture’s share of GDP fell from 45 percent to 25 percent, while the share of manufacturing rose from 9 percent to 27 percent. One important factor contributing to the achievement was that the authoritarian government could enjoy relative independence from and avoid capture by special interests.
In the 1970’s the government intervened heavily in the financial markets, directing banks to provide low interest loans to Chaebols — conglomerates of businesses owned by a single family — selected for the task of developing different sectors. This successfully expanded these capital-intensive industries more rapidly than the rest of the economy, however the manipulation of the financial system also generated multiple symptoms of distortion, including rapidly slowing growth, worsening inflation and the accumulation of non-performing loans.
Following Park Chung Hee’s assassination in 1979 the new government began de-regulating the trade and financial sectors. In the 1990s liberalisation of the capital account followed, causing rapid accumulation of short-term external debts. This, together with a highly leveraged corporate sector and the banking sector destabilized by the financial repression, provided the background to the contagion of the financial crisis from South-east Asia in 1997. The crisis provided a strong momentum for corporate and financial sector reform.
South Korea was forced by the IMF to make reforms and open up its economy in exchange for a bail out. The South Korean people felt strongly that the IMF was interfering with their way of life and a patriotic campaign was initiated where people were encouraged to donate their gold and other valuables to pay off the country’s debt.
Since the Asian financial crisis, the corporate landscape has changed considerably as a result of massive bankruptcies and government reforms. The crisis exposed long-standing weaknesses in South Korea’s economy, including high debt-to-equity ratios, massive foreign borrowing and an undisciplined financial sector. This led to two rounds of financial and industrial restructuring; once in 1997 and again following the collapse of Daewoo in 1999. Daewoo’s collapse has been recorded as one of the largest bankruptcies in world history. By 2003, just over one-half of the 30 largest chaebol from 1995 remained.
South Korean Economy today
South Korea is one of the most highly developed and prosperous nations in the world, ranked 11th in GDP (2016 prices) at 1.41 trillion USD. The country has placed itself as a world leader in industries such as car manufacturing and consumer electronics. The country is dominated by Chaebols – conglomerates of businesses with the majority of ownership by one family. South Korea is also the worlds 7th largest exporter, with exports valued at 483 billion USD.
South Korea is New Zealand’s fifth largest export market with bilateral trade worth $4 billion (NZD). The top exports of South Korea are integrated circuits (49.3bn USD), cars (37.4bn USD), passenger and cargo ships (25.1bn USD), refined petroleum (24bn USD) and vehicle parts (21.7bn USD). Its top imports are crude petroleum (44.3bn USD), integrated circuits (19.8bn USD), petroleum gas (14.9bn USD), refined petroleum (11.7bn USD) and cars (9.3bn USD).
The top export destinations of South Korea are China (124bn USD), the United States (66.7bn USD), Hong Kong (32.8bn USD), Vietnam (32.6bn USD) and Japan (24.4bn USD). The top import origins are China (93.7bn USD), Japan (46.2bn USD), the United States (42.3bn USD), Germany (19.3bn USD) and Singapore (14.5bn USD).
Over the past ten years entrepreneurship has been fostered by the government and the role of Small and Medium Sized Enterprises in the economy has risen, particularly in the IT and software development space.
While South Korea survived the 2008 global financial crises well and even increased its exports, it alerted the government to the risk of an over-reliance on the global economy. From 2010 onward the government has been re-balancing the economy to encourage the service sector to play a more important role.
Growing sectors include education & training services, film and media, health products (food, nutritional complements), household consumer goods, housing decoration, computer software, medical equipment, new energy power generation, pharmaceuticals, fashion; luxury goods, “silver services”, and travel tourism.
The government has also been pushing the promotion of the Korean brand. Since 2010 the ‘K’ wave has become increasingly obvious, this includes Korean fashion, Korean film and drama, Korean food and Korean music. South Korea is considered by many as the ‘cool kids’ of Asia and this has helped the sales of their products internationally.
|Currency||South Korean Won|
|Exchange Rate||South Korean won (KRW) per US dollar –
1,136.7 (2017 est.)
1,160.77 (2016 est.)
1,160.77 (2015 est.)
1,130.95 (2014 est.)
1,052.96 (2013 est.)
|GDP Per Head||35,800 USD (2017)|
|Household Income||21,723 USD (2017)|
|Real GDP Growth||3.2% in 2017, 3% predicted in 2018|
|Exports||552.3 billion USD (2017)|
|Imports||448.4 billion USD (2017)|
|Main Exports||Ships, petroleum products, semiconductors, motor cars and vehicles, liquid crystal devices, car parts, mobile phones, home appliances, steel products, telephone sets|
|Current Account||6.06 billion USD surplus (2017)|
|Inflation||Jan 2018 1%|
|Unemployment Rate||Sept 2017 3.8%|
South Korea 2018-2019 Economic Outlook
Under President Moon Jae-in the government has increased government spending and put in place a scheduled increase in the minimum wage. The government announced that South Korean’s annual per capita income will increase to 32,000 USD by the end of 2018. This is expected to raise domestic consumption, and the government will seek to increase investment and job creation by providing tax breaks for small and medium-sized companies affected by the wage hike.
A healthy global economy and a boost from the PyeongChang Winter Olympics are expected to further support the economy this year. However, government measures to tame the housing market could weigh on the growth outlook, with construction investment expected to slow. The economy is expected to grow at 3.0% in 2018, which is up 0.1 percentage point from last year’s growth. In 2019, they foresee an expansion of 2.8%.
South Korean consumption behaviour has increasingly followed the consumption patterns of typical developed economies. South Korean consumers tend to be concerned with the brand name and health attributes of a product, but also seek impeccable after-sales service.
Tech-savvy South Korean consumers typically research products online, especially through social media, before shopping and enjoy being well informed when purchasing a product. Consumers are becoming less concerned with buying products made in South Korea and are increasingly inclined to purchase non-domestic products, often at much lower prices.
In recent years, slow growth and high levels of personal debt have made some South Korean consumers watchful with their spending; however, high-end luxury shoppers are still spending at elevated rates. South Koreans live in a culture driven by consumption and they aspire for the lifestyles that are being portrayed by the media. They are increasingly viewing money as the representation and sign of success and put greater emphasis on publicly-visible items because of their attached symbolic meanings and values.
Young South Korean consumers purchase apparel and other fashion items, including foreign brands with scarcity value, which they use to express their individuality amidst a rather uniform society. Increasingly, South Koreans of all ages and genders view their appearance as something that can be improved through purchases. Not being fashionable or not knowing the latest fashion trend is considered negligent, ignorant and tasteless.
Key Market Trends:
An Ageing Population
Illnesses and ongoing changes in health needs associated with a rapidly ageing population is driving demand for a broad range of bio-health related products and services. Pension funds are swelling and under intense pressure to boost returns.
Food and Agriculture
South Korean’s loyalty for some domestic products is declining. Korean tastes are constantly evolving and becoming more sophisticated. As a result, South Korea’s imports of processed food, functional food and food ingredients continue to increase (6% year on year to NZ$17 billion in 2015).
Korea is committed to investing in education and human capital. In 2014, South Korea’s investment in R&D was NZ$73 billion or 4.3% of GDP. South Korea consistently ranks in the top three countries globally for patent productivity, science infrastructure and on Bloomberg’s Global Innovation Index.