Republic of Korea: Successes and Development Problems

8 may 2019

In their new bulletin on the current trends in the global economy the Analytical Center experts assess the successes of South Korea, one of Asia's new industrial nations with a very fast rate of economic growth, and consider the problems it is currently facing.

Between 1980 and 2018 the country's economy grew almost by a factor of 20. Effectively implemented reforms, good labor ethics and a favorable situation in the global economy allowed South Korea to evolve from an agrarian economy into one of the leading industrial players on the global market. This fast growth was to a large extend helped along by the fast growth in the 20th century of major industrial and financial conglomerates (so called cheebols), which helped keep exports growing.

Despite the obstacles that the hierarchical structure of the big business organization created for the development of domestic competition, the Korean government managed to promote the development of an institutional environment. In 2018, South Korea was rated 5th (out of 190 countries) in the Doing Business ranking which rates countries based on how easy it is to do business in them. The country scored highest in the ranking on such metrics of the index as getting electricity (2nd place), enforcing contracts (2nd place), dealing with construction permits (10th place), registering property and resolving insolvency (11th place).

Significant influence of big business remains a big problem for the country's economy to this day. Officially, South Korea has about 30 business conglomerates, but the 5 largest ones, Hyundai, Samsung, Daewoo, LG and SK, account for 1/3 of the country's total sales and almost 50% of all Korean exports. Appreciating the existing difficulties, the government is trying to restructure the big conglomerates, privatize state banks and generally liberalize the economy.

Various estimates suggest that South Korea's economic growth is going to slow down in 2019 compared to 2018, but after that the country's economy is expected to pick up pace again. Experts believe the downturn is a result of slowing exports, however, they believe that the continued liberalization of the tax and budget policy as well as low inflation should prop up demand.

In this situation the country is going to have to not only adapt to the new situation in the global economy but also find additional drivers of economic growth.

For more details see the bulletin Republic of Korea: Successes and Development Problems.

For other bulletins on the development of competition, follow this link.