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Over the last three decades, the Republic of Korea has achieved what is widely
acclaimed as "the Economic Miracle on the Han-gang river." Since
Korea embarked on economic development in earnest in 1962, its economy has grown
at one of the fastest paces in the world. As a result, Korea, long one of
the world's poorest agrarian societies, has emerged as an upper middle-income,
fast industrializing country.
In
around three decades, from 1962 to 1997, Korea's gross national product
increased from US $2.3 billion to US437.4 billion, with per capita GNP soaring
from US $87 to about US $9.511 at current price levels. The key to this
success was the adoption of an outward-looking development strategy making
exports the engine of growth - a strategy that reflected Korea's insufficient
natural endowments, its limited domestic market, and its abundant, well-educated
industrious manpower.
The
economic structure was radically transformed as a result of the successful
development programs implemented during these years. The manufacturing
sector increased its share of GDP from 14.4% to over 25.9% in 1996. The
commodity trade volume reached more then US $274.9 in 1996 in contrast to US
$477 million in 1962. The gross savings ration rose to 34.8 percent from
11.0 percent during the same period.
Korea's
development is even more remarkable in view of its situation until the early
1960s. Korea had been economically backward for most of its long
history. There were few significant industries before liberation from
Japan's 35-year colonial rule (1910-1945), during which Korea's economic
resources were ruthlessly exploited by the Japanese.
The Korean economy
was further devastated during the Communist-provoked Korean War (1950-1953), the
damage from which took a long time to heal. As late as 1961, Korea was
still suffering from the many difficulties commonly faced by less developed
nations. On top of its extreme poverty, the population was growing by 3
percent annually. Unemployment prevailed and savings were
negligible. The nation had no notable exports, and it depended on imports
for both raw materials and important manufactured goods.
Since
the 1960s, South Korea has achieved an
incredible record of growth and global
integration to become a high-tech industrialized
economy. Four decades ago, GDP per capita was
comparable with levels in the poorer countries
of Africa and Asia. In 2004, South Korea joined
the trillion dollar club of world economies, and
currently is among the world's 20 largest
economies. Initially, a system of close
government and business ties, including directed
credit and import restrictions, made this
success possible. The government promoted the
import of raw materials and technology at the
expense of consumer goods, and encouraged
savings and investment over consumption. The
Asian financial crisis of 1997-98 exposed
longstanding weaknesses in South Korea's
development model including high debt/equity
ratios and massive short-term foreign borrowing.
GDP plunged by 6.9% in 1998, and then recovered
by 9% in 1999-2000. Korea adopted numerous
economic reforms following the crisis, including
greater openness to foreign investment and
imports. Growth moderated to about 4-5% annually
between 2003 and 2007. With the global economic
downturn in late 2008, South Korean GDP growth
slowed to 0.2% in 2009. In the third quarter of
2009, the economy began to recover, in large
part due to export growth, low interest rates,
and an expansionary fiscal policy, and growth
exceeded 6% in 2010. The South Korean economy's
long term challenges include a rapidly aging
population, inflexible labor market, and
overdependence on manufacturing exports to drive
economic growth.
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