Transcript Document 7350507

The Korean Economy: Past,
Present, Future Challenges and
Lessons from its Experiences
April 2013
Hyun-Hoon LEE
(Kangwon National University)
Hyun-Hoon LEE
 Professor, Department of International Trade and Business,
Kangwon National University, Korea - Current
 Dean, Asia-Pacific Cooperation Academy, Kangwon National
University, Korea
 Senior Analyst, Asia-Pacific Economic Cooperation (APEC)
Secretariat
 Senior Environmental Affairs Officer, United Nations Economic
and Social Commission for Asia and the Pacific (UNESCAP)
 Visiting Professor, Keio University, University Melbourne, Bank
of Korea, etc.
 Ph.D. in Economics, University of Oregon, U.S.
2
3
Contents
1. Transformation of the Korean Economy (1945-2011)
2. The Current Status of the Korean Economy
3. Challenges Ahead
4. Lessons from the Korean Experiences
1. Transformation of the Korean Economy (1945-2011)
1.1 Overview - summary
[ Korea in 1962 and in 2011 ]
1962 (a)
2011 (b)
b/a
GDP per capita (in US$)
103
22,424
218
GDP (in billion US$)
2.7
1,116.2
413
Exports (in billion US$)
0.55
555.2
1,009
6
1.1 Overview - Per Capita Income
20,045
Per Capita
Income (US$)
16,413
11,432
10,000
Six 5-Year-EconomicDevelopment Plans
7,355
Financial
Crisis
5,000
Liberation
from Japanese
Colonial Rule
1,000(1977)
67
1945
1953
89
1961
OECD
Member
100(1964)
1970
1980
1990
1995 1998 2005 2007
7
1.1 Overview - GDP Structure & Employment Structure
< GDP Structure >
Agriculture, fisheries,
and mining
2.6%
Agriculture, fisheries,
and mining
45%
Services
40%
2009
1963
Manufacturing
28.0%
Services
69.4%
Manufacturing
15%
< Employment Structure >
Agriculture, fisheries,
and mining
5.3%
Manufacturing
16.8%
Services
29%
2009
1963
Manufacturing
8%
Agriculture, fisheries,
and mining
63%
Services
77.9%
8
1.1 Overview – Status in the World
 12th largest trading nation;
 14th largest economy;
 No 1 shipbuilder;
 No 5 producer of automobiles;
 No 4 producer of electronics;
 No 1 producer of semiconductors;
 No 5 producer of textiles;
 And perhaps one of the most dynamic countries.
9
1.1 Overview – Status in the World
20 largest economies in the world in terms of GDP (2010)
Rank
Country
GDP(US
Billion)
Rank
Country
GDP(US
Billion)
1
U.S.
14,587
11
Russia
1,727
2
China
5,927
12
Spain
1,407
3
Japan
5,459
13
Mexico
1,035
4
Germany
3,281
14
Korea
1,015
5
France
2,560
15
Netherlands
779
6
U.K.
2,249
16
Turkey
734
7
Brazil
2,088
17
Indonesia
707
8
Italy
2,051
18
Switzerland
528
9
India
1,727
19
Poland
469
10
Canada
1,527
20
Belgium
469
41
Singapore
209
10
1.1 Overview – Status in the World
11
1.1 Overview – Status in the World
12
1.2 Park Chung Hee (President during 1963 – 1979)
 led a bloodless military coup in 1961
 launched the first Five-Year Economic Development
Plan in 1962
 became president after 1963 election
 imposed martial law in 1972
 assassinated in 1979 by the head of KCIA
13
1.2 Park’s strategies
 Prosperity and independence by pursuit of a highgrowth economic strategy
 Export-led industrialization strategy
 Market economy, but strong government intervention
14
1.3
Economic Take-Off with Export-led Growth
Strategy (1/8)
< Economic Conditions of the Early 1960s >
Capital
Shortage
Weak
Technology Base
Underdeveloped
Private Sector
Abundant
Labor
?
High Level of
Education
Strong
Economic will
15
1.3
Economic Take-Off with Export-led Growth
Strategy (2/8)
< Working Mechanism of Outward-looking Development Strategy >
Economic Growth
Foreign Capital Inducement
(Economic Aids External Debt)
S
S
Manufacturing
Processing
Capital Good Imports
Export
Promotion
Private
Enterprises
Raw Material Imports
Financial  Tax
Support
Foreign Technology
Imports
Technology
Development
Well-educated Labor force
Government
16
1.3
Economic Take-Off with Export-led Growth
Strategy (3/8)
Major tools for export promotion policy
 export targets set by the government.
 financial support for exporters at preferential rates.
 tax concessions.
 allowance for retaining foreign exchange earnings.
 exempted from import controls and tariffs.
 fiscal policy in favor of key industrial firms.
 a sliding-peg system of exchange rate adjustment.
 awards from the president.
17
1.3
Economic Take-Off with Export-led Growth
Strategy (4/8)
< Growth in Imports and Exports >
(% of GDP)
40
Imports
20
Exports
0
Trade balance
53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04
18
1.3
Economic Take-Off with Export-led Growth
Strategy (4/8)
< Growth in Imports and Exports >
19
1.2
Economic Take-Off with Export-led Growth
Strategy (5/8)
 Iron and Steel
 Electronics
 Petro-Chemical
Policy Change
Toward
HCI Development
Products
 Automobile
 Ship-building
 Machinery
 Mobilizing Financial Resources
 Selecting National
Champions(“Chaebol”)
20
1.2
Economic Take-Off with Export-led Growth
Strategy (6/8)
< Changes in Export Commodity Profile:
From Light Industry to Heavy Industry >
Semiconductor, Mobile
Phone, DTV, Display,
Automobile, Ship-building,
etc.
83.7% HCI Product
Export
Commodity
Profile
50%
Agricultural
Product
8.9%
7.4.%
1960
1970
1980
1990
2000
2007
Light
Industry
Product
21
1.2
Economic Take-Off with Export-led Growth
Strategy (7/8)
【 Top 10 export items of Korea (%) 】
1970
1980
1990
2000
2010
Rank
Item
Share
Item
Share
Item
Share
Item
Share
Item
Share
1
Textiles
40.8
Garments
16.0
Garments
11.7
Semiconductor
15.1
Semiconductor
10.8
2
Plywood
11.0
Steel Plate-rolled
Products
5.4
Semiconductor
7.0
Computer
8.5
Vessel
3
Wigs
10.8
Footwear
5.2
Footwear
6.6
Automobile
7.7
Automobile
4
Iron ores
5.9
Vessel
3.6
Video Apparatus
5.6
Petrochemical
products
5.3
Flat penal display
6.9
5
Electronic
goods
3.5
Audio Apparatus
3.4
Vessel
4.4
Vessel
4.9
Petrochemical
products
6.7
6
Confectionery
2.3
Man made
filament fabrics
3.2
Computer
3.9
Wireless telecom
4.6
Wireless telecom
7
Footwears
2.1
Rubber Products
2.9
Audio Apparatus
3.8
Synthetic Resin
2.9
Parts of Automobile
8
Tobaccos
1.6
Woods & Wood
items
2.8
Steel Plate-rolled
Products
3.8
Steel Plate-rolled
Products
2.8
Synthetic Resin
9
Iron products
1.5
Video Apparatus
2.6
Man made
filament fabrics
3.6
Garments
2.7
Steel Plate-rolled
Products
3.5
10
Metal products
1.5
Semiconductor
2.5
Automobile
3.0
Video Apparatus
2.1
Computer
1.9
Total
Source : KOTIS, MTI
81.1
47.6
53.4
56.6
10.5
7.5
5.9
4.0
3.6
62.0
22
1.2
Economic Take-Off with Export-led Growth
Strategy (8/8)
【 Top 10 export markets for Korea (%) 】
1970
1980
1990
2000
2010
Rank
Country
%
Country
%
Country
%
Country
%
Country
%
1
U.S.
47.3
U.S.
26.3
U.S.
29.8
U.S.
21.8
China
25.1
2
Japan
28.1
Japan
17.4
Japan
19.4
Japan
11.9
U.S.
10.7
3
Hong Kong
3.3
Saudi Arabia
5.4
Hong Kong
5.8
China
10.7
Japan
6.0
4
Germany
3.3
Germany
5.0
Germany
4.4
Hong Kong
6.2
Hong Kong
5.4
5
Canada
2.3
Hong Kong
4.7
Singapore
2.8
Taiwan
4.7
Singapore
3.3
6
Netherlands
1.6
Iran
3.5
U.K.
2.7
Singapore
3.3
Taiwan
3.2
7
U.K.
1.6
U.K.
3.3
Canada
2.7
U.K.
3.1
Germany
2.5
8
Vietnam
1.5
Indonesia
2.1
Taiwan
1.9
Germany
3.0
India
2.3
9
Singapore
1.3
Netherlands
2.0
France
1.7
Malaysia
2.0
Mexico
2.1
10
Sweden
0.9
Canada
2.0
Indonesia
1.7
Indonesia
2.0
Indonesia
1.9
Total
91.4
71.6
72.9
68.8
62.4
Source : KOTIS
23
1.2
【 Top 5 export items from Algeria to Korea in 2010】
Rank
Items
1
Mineral fuels
2
Trade Value
Share(%)
$285,019,319
99.5
Fish and crustaceans
$979,694
0.3
3
Aluminum and articles thereof
$222,853
0.1
4
Nuclear reactors, boilers, machinery and mechanical appliances
$67,613
0.0
5
Residues and waste from the food industries
$67,261
0.0
Total
All Items
$286,467,916
100
【 Top 5 export items from Korea to Algeria in 2010】
Rank
Items
Trade Value
Share(%)
1
Vehicles other than railway or tramway rolling-stock
$554,802,650
36.6
2
Nuclear reactors, boilers, machinery and mechanical appliances
$344,371,878
22.7
3
Articles of iron or steel
$188,381,683
12.4
4
Ships, boats and floating structures
$145,183,471
9.6
5
Plastics and articles
$99,157,812
6.5
$1,514,111,937
100
Total
All Items
Source : UN Comtrade, HS2007
24
1.3 Pitfalls of the Government-led Development (1980-97)
Financial repression
due to prolonged
government intervention
Over-investment in
HCIs
High inflation and
large fiscal deficits
• Inefficient resource allocation
• Macroeconomic instability
• Rising inequality
Negative economic
growth (-3.9%) and
political crisis in 1980
Change in policy stance:
“Liberalization and Stabilization”
25
1.3 Pitfalls of the Government-led Development (1980-97)
< The Crisis of 1997 >
Widespread
moral
hazard
Continued
government intervention/
Weak
prudential regulation
High
corporate
debt
leverage
Large NPLs
in the
financial
sector
South-east Asian
crisis
Increased
vulnerability
to
external
shocks
• Massive capital outflow
• Denied rollover of shortterm external debt
IMF
rescue package
26
1.4 The Financial Crisis and Economic Reform
Cleaning up
non-performing loans
Accelerating
liberalization
Improving
corporate governance
Expanding
social safety net
Rapid
economic
recovery
- GDP growth: -6.7% (1998)
 10.7% (1999)
- Unemployment: 6.8% (1998)
 3.2% (Sept 2007)
Improved
external
positions
- Early graduation from
the IMF program
- Foreign reserves of more than
USD 258bn in May 2008
Stronger
corporate and
financial sector
- Debt-equity ratio: 396% (1997)
 182% (2002)
- No. of banks: 33 (1997)
 20 (2001)
27
2. The Current Status of the Korean Economy
Percent
2.1a Real GDP Growth Rate – year on year
Source: Bank of Korea
29
Percent
2.2 Business Condition Index: Prospects, All Industries
Source: Bank of Korea
30
2.3 Unemployment Rate
Source: National Statistical Office
31
2.4 Stock Market – Korea Composite Stock Price Index
32
2.5 Consumer Prices (year-on-year, % change)
Source: Bank of Korea
33
2.6 Won/US Dollar Exchange Rate
Source: Bank of Korea
34
2.7 Current Account Balance
35
2.8 International Reserves
36
3. Challenges Ahead
3.1 Potential Growth Rate and Productivity (1/2)
Economic growth of Korea depended on accumulation of
resources such as capital and labor.
 Korea has shown one of the highest saving ratio.
 It is well endowed with highly educated and well trained labor.
Average year of total schooling (total)
Average year of total schooling (2010)
12
Korea
10
12
10
8
8
China
Year
female
6
6
total
India
4
4
2
2
0
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
China
India
Korea, Rep.
38
 잠재성장률
추세변화와
요인Productivity (2/2)
3.1
Potential Growth
Rate and
III. 한국의 잠재 경제성장률과 그 제고방안 /
39
Growth depending on factor accumulation ran its course, and
productivity should lead further growth.
 Education and training system toward the knowledge-based economy
 Promoting public and private R&D activities
 Creating an investment-friendly environment
 Upgrading the institutional quality
< Potential Growth Rate and Contributing Factors >
Productivity
6.1
6.9
1.8
1.8
(%)
4.8
1.6
Capital
3.3
3.9
2.3
Labor
Source: KDI
1.0
1.2
0.9
1991∼2000
1991∼1997
2003∼2012
(before economic
crisis)
(after economic
crisis)
39
3.2 Income Disparity (1/3)
Income disparity has recently increased, reflecting structural
changes in industries and labor markets.
 The Government has pursued “shared growth”, “fare society”, and “symbiosis society”.
 But there has been growing discontent among people.
Relative Poverty Ratio and Gini Coefficient
15
0.34
14
0.32
13
0.3
12
0.28
11
10
0.26
9
0.24
8
0.22
7
6
0.2
Relative Poverty Ratio (%): Left
Gini Coefficient (%): Right
40
3.2 Income Disparity (2/3)
Different regimes have pursued different welfare policies.
Periods
Regime
Economic policies
Welfare policies
Park Jung-hee
Authoritarian dictatorship (1961-1979)
Chun Doo-hwan
Industrialization
(1980-1987)
Government dominant growth
strategy
Growth First, Distribution Later
Roh Tae-woo (1988-1992)
Democratization
Developmental Welfare State
or Minimalist Welfare State
Transition period
Kim Young-sam (1993-1997)
Kim Dae-jung (1998-2002)
Globalization
and
industrialization
post- Productive Welfare
Participatory Welfare
Market driven growth
Lee Myung-bak (2008-present) Balance between growth and Active Welfare
distribution
Democratic government Noh Mu-hyun (2003-2007)
41
3.2 Income Disparity (3/3)

Three major problems in employment:
(1) high degree of dualism between regular workers and non-regular workers;
(2) high unemployment rate of the youth; and
(3) low employment rate of women.
Share of Non-regular workers (%)
Total Unemployment vs. Youth
Unempolyment (%, 1990-2010)
38
36
14
34
12
Female Employment Rate vs. Male Employment
Rate (%, 1990-2010)
80.0
75.0
70.0
65.0
32
10
60.0
30
8
55.0
28
50.0
6
26
45.0
4
24
40.0
2
22
20
35.0
0
30.0
199019911992199319941995199619971998199920002001200220032004200520062007200820092010
2001. 8 2002. 8 2003. 8 2004. 8 2005. 8 2006. 8 2007. 8 2008. 8 2009. 8 2010. 8 2011. 3
Total employment rate (%)
Share of Non-regular workers
Unemployment rate (%)
Youth unemployment rate (%)
Male employment rate (%)
Female employment rate (%)
42
3.3 Challenges from China (1/2)
During the period of 1990s and 2000s, Korea gained a CA in high-tech
products and improved medium-high tech, while CA declined in mediumlow tech and Low tech products.
China showed similar pattern and became challenges to Korea in the
World market.
Low tech
2.5
Medium-low tech
Medium high tech
China
2
1.5
Japan
Japan
Korea
Korea
US
Japan
1
US
0
Korea
China
US
China
Japan
1993
US
China
Korea
0.5
High tech
2004 1993
2004 1993
2004 1993
200443
3.3 Challenges from China (2/2)
China is now number on trading partner for Korea, thus is providing the
largest market for Korea. Yet, Korea is becoming overly dependant on
China.
【 Top 10 export markets for Korea (%) 】
1970
1980
1990
2000
2010
Rank
Country
%
Country
%
Country
%
Country
%
Country
%
1
U.S.
47.3
U.S.
26.3
U.S.
29.8
U.S.
21.8
China
25.1
2
Japan
28.1
Japan
17.4
Japan
19.4
Japan
11.9
U.S.
10.7
3
Hong Kong
3.3
Saudi Arabia
5.4
Hong Kong
5.8
China
10.7
Japan
6.0
4
Germany
3.3
Germany
5.0
Germany
4.4
Hong Kong
6.2
Hong Kong
5.4
5
Canada
2.3
Hong Kong
4.7
Singapore
2.8
Taiwan
4.7
Singapore
3.3
6
Netherlands
1.6
Iran
3.5
U.K.
2.7
Singapore
3.3
Taiwan
3.2
7
U.K.
1.6
U.K.
3.3
Canada
2.7
U.K.
3.1
Germany
2.5
8
Vietnam
1.5
Indonesia
2.1
Taiwan
1.9
Germany
3.0
India
2.3
9
Singapore
1.3
Netherlands
2.0
France
1.7
Malaysia
2.0
Mexico
2.1
10
Sweden
0.9
Canada
2.0
Indonesia
1.7
Indonesia
2.0
Indonesia
1.9
Total
91.4
71.6
72.9
68.8
62.4
44
3.4 Aging Society
The speed of population aging is far higher in Korea than other
major developed countries.
 Reforming the public pension and health insurance program
 Extending employment opportunities for female, elderly and disadvantaged groups
< Share of the old (65+) >
(% of total population)
40
35
Japan
30
25
20
15
10
US
EU
Australia and
New Zealand
Korea
5
0
60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50
45
3.5 Challenges of Regionalism
Major economies of the world have pursued regionalism, while
multilateralism under the WTO has been staggering.
 Through FTA, Korea aims to enhance regional cooperation and to be a center of R&D,
logistics and financial services in Asia.
 It also endeavors to transform into an open and globalised economy, promoting FTA
with a variety of economies.
< Korea’s Promotion of FTA >
Chile, Singapore, EFTA, ASEAN,
USA, EU, India, Peru, Turkey,
Columbia
Canada, Indonesia, China, CJK , Vietnam,
RCEP
FTA completed
Negotiation in
progress
FTA under
consideration
Japan, Mexico, GCC, Australia, New
Zealand, MERCOSUR, Malaysia, etc.
46
3.5 Worsening Environment (1/2)
Korea’s Environment has worsened at a very rapid rate during its
course of rapid industrialisation.
 Korea’s environmental sustainability (Environmental Sustainability Index) ranked 122
out of 146 countries in 2005.
 Korea’s ecological footprint has exceeded its environmental carrying capacity.
 Korea’s Ecological Footprint and Biocapacity per person
47
3.5 Worsening Environment (2/2)
A special attention needs to be given to environmental sustainability
during the course of economic growth.
Korea has adopted a new paradigm of economic growth, namely the
paradigm of “Green Growth” or environmentally sustainable economic
growth.
 Two Principles of Green Growth
(1) Creation of synergy between growth and environmental
sustainability
Many policy makers and businesses tend to believe that
investment in the environment is a sunken cost, but the
environment and the economy can be integrated to create
synergy.
(2) Improving eco-efficiency
To enhance the environmental sustainability, countries need to
reduce not only “relative” environmental impact per unit of
production, but also the “absolute” size of environmental impact
per person.
48
4. Lessons from the Korean Experiences
4.1 Strong political leadership and stability
President’s strong leadership and political stability are a precondition.
 President’s strong commitment to economic growth led Korean people’s willingness
to “work hard, save more, and sacrifice.”
 Long-term goals were set and policies were consistently implemented.
50
4.2 Market economy
Market economy is always more efficient than planned economy.
 Capitalistic market economy was put in place after the liberalization in 1945.
 In the early stage of development, the Government intervened in the market .
 Because the Government’s intervention continued even in the later stage, the Korean
economy faced the financial crisis in 1997.
 Since 1998, economic reform toward “more liberalization and lesser government
intervention” has helped the Korean economy revive its growth engine .
51
4.3 Outward orientation
Outward orientation with strong incentives for exports is better than
Inward orientation with the policy of import substitution.
 Korean firms were forced to meet the global standard.
 Korean firms were able to enjoy the economies of scale.
 Korea was able to secure $ which was used to purchase raw materials, technology
and build new factories..
52
4.4 Human capital through good education
Human capital is the key to economic growth and it can be build up only
through good education
 Korea was relatively well endowed with relatively well educated labor.
 Korean people consider investment in education yields more return than any other
kinds of investment.
 Various R&D centers were established and Korean scientists and engineers were
recruited from abroad
53
4.5 A New Growth Paradigm of Sustainable Development
is Need
A special attention needs to be given to environmental sustainability
during the course of economic growth.
Green Growth
Inclusive Growth
54
55
Hyun-Hoon Lee
[email protected]
56