a brief introduction to the korean economy dec. 03, 2003 yung-soo shin republic of korea
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TRANSCRIPT
A Brief Introduction to the Korean Economy
Dec. 03, 2003
Yung-Soo Shin
Republic of Korea
Agenda
• Where’re we now?– Quantitative Data
• How’s the miracle made?– Economic Development Process– Did the miracle end?
• Financial Crisis in 1997
• Will the growth be continued?– Future growth engines
1. Where’re we now?
General information
• Location –Eastern Asia, southern half of the Korean Peninsula
Generation Information
• Independence : 1945– Economic exploitation under the Japanese colonial rule
from 1910 to 1945
• Creation of the Republic of Korea : 1948– Democratic government established in the U.S-sponsored
south• Communists in the Soviet-sponsored north
• Korean War : 1950-53– Over 40% of industrial facilities and 20% of housing
stocks destroyed
General information
• Area
– The total area of the peninsula: 222,154 sq km
• similar to the size of Britain
– The area of South Korea : 99,313 sq km(45% of the Peninsula)
• about the size of Hungary
General information
• Population(2002) : 47.6 million– Density : 479 people per sq km– Growth rate : 3%(1960s), 2%(1970s), 0.7%(2002) – North Korea : 22.3 million
• Urban Population(2002) : 83.0%
• Ethnic groups : homogeneous
• Languages : Korean– Invented by the King Sejong in 1443
General information
• Literacy(2002) : 98.0%
• Life expectancy(2002) : 73.9
• Gini coefficient(1996) : 0.2954
• Employment Structure(1960-2002)– Primary : 63.0% to 9.7%– Secondary : 8.7% to 19.1%– Tertiary : 28.3% to 71.2%
General information
• Economy scale(1962-2002)– GDP : US$2.3 billion to US$477 billion– GDP per capita : US$87 to US$10,013– The World 12th largest Economy– 29th OECD member since 1996
• GDP Composition by sector(2002)– agriculture: 4.0%– industry: 40.9%– services: 55.1%
• Exports of goods(% of GDP, 2001) : 35.6%
General information
• ICT Sector Exports in Total Merchandise Exports (2001) : 31.0%
• Expenditures for R&D(% of GDP)(2002) : 2.7%
• Number of internet users : 26.3 million– 55.1% of the Population
• Broadband service subscribers : 10.4 mill.– more than 70% of all households
General information
• Foreign trade(2002, US$ mill.)– Export : 162,471– Import : 152,126– Trade balance : 10,344
• Exports by types of goods(2002, US$ mill.)– Electronics : 63,574(39.1%)
• Semi-conductor : 16,631(10.2%), Communication Equip : 13,619(8.4%), Computer : 12,941(8.0%)
– Chemical & Petro : 21,592(13.3%)– Vehicle : 14,779(9.1%)– Vessel : 10,867(6.7%)– Machinery : 9,764(6.0%)– Steel & Metal : 9,312(5.7%) >>Heavy Ind.: 82.7%
Exports by types of goods(2002)
Primary(2.5%)
Steel & Metal(5.7%)
Light Indstry(14.9%)
Electronics(39.1%)
Machinary(6.0%)
Chemical &Petro(13.3%)
Vehicle(9.1%)
Vessel(6.7%)
Exports by country or region(2002)
OthersAfrica
OceaniaTaiwanMiddle East
La. AmericaHong K(6.2)
J apan(9.3)ASEAN(11.3
EU(13.4)China(14.6)
USA(20.2)
0 10000 20000 30000 40000
Exp
ort
s
General information
• Imports by types of goods(2002, US$ mill.)– Raw materials :76,063(50.0%)– Capital goods : 56,399(37.1%)– Consumer goods : 18,795(12.4%)
» Total imports : 152,126(100.0)
• Import Partners(2002, US$ mill.)– Japan 29,856(19.6%) – USA 23,009(15.1%) – Middle East 20,881(13.7%) – China 17,400(11.4%) – EU 21,803(11.2%) – ASEAN 16,757(11.0%), etc.
Imports by country or region(2002)
Others
La. America
Taiwan
Oceania
Asean(11.0)
EU(11.2)
China(11.4)
M.East(13.7
USA(15.1)
J apan(19.6)
0 5000 10000 15000 20000 25000 30000
Imp
ort
s
2. How’s the miracle made?
Economic Development Process
• 1960s : Launch of Economic Development Plans & Industrialization
• 1970s : Promotion of Heavy and Chemical Industries
• 1980s : Strengthening of Economic Stabilization Efforts
• 1990s : Weakening of Economic Constitution– 1997 : Financial Crisis
Launch of Industrialization in the 1960s
• Five-Year Economic Development Plan launched in 1962
• Promotion of Labor-intensive export industries : Textiles, Plywood, Wig
– Extensive export promotion measures • Low-interest rate policy, tax exemptions and tariff rebates to export in
dustries
– Efficient mobilization and allocation of investment resources • Specialized banks, Foreign Capital Inducement Act
Key Economic Indicators in the ‘60s
1962 1969Annual
Change(%)
GNP per capita(US$) 87 210 12.5
Real GDP Growth Rate(%) 2.1 13.8 8.7
Current A/C Balance(Mill. US$) -55.5 -548.6 -
Exports(Million US$) 54.8 658.3 41.5
Imports(Million US$) 390.1 1,650.0 24.7
Gross Domestic Invest. Ratio(%) 11.8 27.9 -
Gross Saving Ratio(%) 11.0 21.4 -
Consumer Price inflation(%) - 11.6 11.4
Promotion of Heavy & Chemical Industries in the 1970s
• Gradual Weakening of Competitiveness of labor-intensive light industries– Protectionism and world-wide stagnation caused by
the first oil crisis– Rapid wage increase and fierce competition from other
developing countries
• Strategic objectives modified : Promoting heavy and chemical industries– Shipbuilding, steel, automobiles, machinery and
petrochemicals
Key Economic Indicators in the ‘70s
1970 1979Annual
Change(%)
GNP per capita(US$) 243 1,636 22.8
Real GDP Growth Rate(%) 8.8 7.1 8.8
Current A/C Balance(Mill. US$) -622.5 -4,151.1 -
Exports(Million US$) 882.2 14,704.5 36.4
Imports(Million US$) 1,804.2 19,100.0 27.7
Gross Domestic Invest. Ratio(%) 26.2 36.2 -
Gross Saving Ratio(%) 19.0 29.9 -
Consumer Price inflation(%) 16.9 18.5 15.3
Economic Stabilization Efforts in the 1980s
• Priority in economic policy shifted from growth to stability– To cope with the 2nd oil crisis, domestic political
turmoil, and huge current account deficit– Tight monetary and fiscal policies
• From 1986 GDP growth accelerated due to ‘3 lows’– Low oil prices, low int’l interest rates and low US
Dollars to JPY– Surplus in Current Account Balance
• 4.7 US$ bill.(’86), 10.0(’87), 14.5(’88), 5.3(’89)
Key Economic Indicators in the ’80s
1980 1989Annual
Change(%)
GNP per capita(US$) 1,598 5,185 12.2
Real GDP Growth Rate(%) -2.1 6.1 7.5
Current A/C Balance(Bill. US$) -5.3 5.4 -
Exports(Million US$) 17,505 62,377 15.2
Imports(Million US$) 22,292 61,465 11.9
Gross Domestic Invest. Ratio(%) 32.2 33.8 -
Gross Saving Ratio(%) 24.4 37.6 -
Consumer Price inflation(%) 28.7 5.7 8.4
Weakening of Economic Constitution in the 1990s
• High-cost, low-efficiency industrial structure deepened– High wages, high land prices & high interest rates– Over-regulation & government meddling in the
financial & corporate sectors
• Intense competition– Rapid catch-up growth of late-starter developing
countries– Launch of WTO, acceleration of market opening to
meet OECD entry criteria
Key Economic Indicators in the ’90s
1990 1996Annual
Change(%)
GNP per capita(US$) 5,886 11,380 11.9
Real GDP Growth Rate(%) 9.0 6.8 7.6
Current A/C Balance(Billion US$) -2.0 -23.0 -
Exports(Million US$) 65,016 129,715 12.2
Imports(Million US$) 69,844 150,339 13.6
Gross Domestic invest. ratio(%) 37.6 38.1 -
Gross Saving Ratio(%) 37.5 33.8 -
Consumer Price inflation(%) 8.5 4.9 6.4
Financial Crisis in 1997
• Nov. 1997 Korea turned to IMF stand-by funds due to lack of FX Reserves
• Three fundamental weaknesses
– Moral hazard in Corporate Sector : “too big to fail” mentality
– Poor Financial system : government direction in allocating capital and poor credit analysis and internal risk control mechanisms
– Large level of short-term foreign debt : following the liberalization of short-term overseas borrowing in 1993
Policy Initiatives to Overcome the Crisis
• Thoroughgoing structural reform
• Corporate sector– Improving corporate governance to force the chaebols to focus on
profitability and shareholders value
• Financial sector– Rehabilitating the financial system by re-capitalizing viable financi
al institutions and addressing the NPL problem– Establishing a new supervisory framework for the financial sector
in order to avoid future crises
Policy Initiatives to Overcome the Crisis
• Public sector– Reducing government’s role through Privatization
of state-owned enterprises and by regulatory reform
• Labor sector – Increasing the flexibility of labor markets by
loosening controls on layoffs and the use of temporary workers while strengthening the social safety net
Fully repaid US$19.5 bill. IMF emergency funds on Aug. 2001
Key Economic Indicators since 1997
1997 1998 1999 2000 2001 2002
GNP per capita(US$) 10,315 6,744 8,595 9,770 8,900 10,013
Real GDP Growth Rate(%)
5.0 -6.7 10.9 9.3 3.0 6.3
Current A/C Bal.(Bil. US$) -8.2 40.4 24.5 12.2 8.6 6.1
Exports(Bill. US$) 136.2 132.3 143.7 172.3 150.4 162.5
Imports(Bill. US$) 144.6 93.3 119.8 160.5 141.1 152.1
Gross Dom. Inv.Ratio(%) 34.4 21.3 26.9 28.3 26.8 -
Gross Saving Ratio(%) 33.4 33.9 32.9 32.4 29.9 -
Consumer Price Infl.(%) 4.4 7.5 0.8 2.3 4.1 2.7
Unemployment Rate(%) 2.6 7.0 6.3 4.1 3.8 3.1
3. Will the growth be continued?
Background to Ten Engines of Growth
• Leading industries over the last 4 decades– 1960s : Light Industry(Textiles, Plywood, Wig)– 1970s : Heavy & Chemical Industry(Steel, Machinery,
Chemicals)– 1980s : Fabricating & Processing Industry(Electronics,
Shipbuilding, Automobile)– 1990s : IT Industry(Semi-conductor, Computer,
Communications Equipment)– 2000s : ?
• GDP Growth Rate Trend– 1962-1990: 8.9%, 1990-1996: 7.1%, 1996-2003: 5.2%– GDP per capita : stalled at US$10,000 level since 1995
Background to Ten Engines of Growth
• Nut-cracker situation– Between the Advanced and the Developing countries
• The Korean government has selected “ten major engines of growth”
– To achieve per capita income of UD$20,000, raising export USD121.3billion and creating 1.42million jobs by 2007
Ten Engines of Growth
Sector Main Items
Goal(by 2007)
Export(USD bil.)
Employment(1,000
Persons)
Digital TV/Broadcasting DTV/DMB/Broadcasting System 15.5 198
Display LDC/LED/PDP/Organic EL 18.6 130
Intelligent Robot Home Robot/Medical Robot 0.5 4
Next Generation VehiclesIntelligent & Environment-friendly Vehicles
25 240
Next Generation Semiconductor
Next Generation Memory/SoC 35 30
Next Generation Mobile System
4G/Telematics 22.8 724
Intelligent Home N/WHome Networking/Intelligent Information Home Electronics
28.5 310
Digital Contents Contents/Built-in S/W 2 234
Next Generation Battery Rechargeable Battery/Fuel Cell 5.4 46
BiotechnologyBiochip/Artificial Organ/New Drug
4.43 45
Thank youfor your attention!