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Economy of South Korea



The economy of South Korea is the 14th largest in the world according to GDP measured in PPP, and the tenth when measured nominally, as of 2006. Per capita gross national product, only $100 in 1963, exceeded $20,000 USD in 2005.


 


The core of the South Korean economy has changed substantially over the country's six-decade existence. In the 1940s, the country was predominantly agricultural, with little industry.[1] The emphasis shifted to light industry and consumer products in the following decades, and then to heavy industry in the 1970s and 1980s. In the first three decades after the Park Chung Hee government launched the First Five-Year Economic Development Plan in 1962, the South Korean economy grew enormously and the economic structure was radically transformed.


 


The rapid economic growth of the late 1980s, however, slowed considerably in 1989. The growth rate was cut almost in half from the previous year (to a still-robust approximate 6.5 percent), the inflation rate increased as wages soared even higher. These developments all pointed to a gradual slowing of the expansion of the rapidly maturing economy.


 


As in other developed countries, the service sector has become increasingly dominant since the 1990s; it now comprises about two-thirds of the GDP


Current status

In recent years South Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. South Korea bounced back from the 1997-98 crisis with International Monetary Fund assistance, and carried out extensive financial reforms that restored stability to markets. These economic reforms pushed by President Kim Dae-jung, helped Korea maintain one of Asia's few expanding economies, with growth rates of 10% in 1999 and 9% in 2000.


 


The slowing global economy and falling exports account for the drop in growth rates in 2001 to 3.3%, but in 2002 Korea pulled out a very respectable 6.0% growth rate. Restructuring of Korean conglomerates (chaebols), bank privatization, and creating a more liberalized economy with a mechanism for bankrupt firms to exit the market remain Korea's most important unfinished reform tasks. As of 2004 the economic situation looks less promising than in the years before. Increasing trade with the People's Republic of China, however, is expected to boost Korea to a leading position among Asia's developed economies. It is also expected to lead the world in penetrating Japan's trade barriers.


 


South Korea relies largely upon exports to fuel the impressive growth of its economy, with finished products such as electronics, textiles, ships, automobiles, and steel being some of its most important exports. Although the import market has liberalized in recent years, the agricultural market has remained largely protectionist due to serious disparities in the price of domestic agricultural products such as rice with the international market.


 


As of 2005, the price of rice in South Korea is about four times that of the average price of rice on the international market, and it was generally feared that opening the agricultural market would have disastrous effects upon the South Korean agricultural sector. In late 2004, however, an agreement was reached through the WTO by which South Korean rice imports will gradually increase from 4% of consumption to 8% of consumption by 2014. In addition, up to 30% of imported rice will be made available directly to consumers by 2010, where previously imported rice was only used for processed foods. Following 2014, the South Korean rice market will be fully opened.

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