South Korea: An Economic Development Success Story?

As a development scholar, my primary interest resides within the influence of international trade on developing economies from a financial and humanitarian standpoint. The following blog posts will attempt to analyze examples of this dynamic by taking a closer look at case studies of developing economies that rely heavily upon exports, imports, or both. First, we will examine a success story of the rapidly developing country of South Korea throughout the past several decades and how it was able to successfully utilize its export-centered economy in a global setting.

Originally South Korea did not have the capability to compete in a global economy until the 1960s when it transitioned from a market focused on domestic products to an export-reliant economy. Prior to this change, the Korean economic system was heavily characterized by its agriculture and mining industries, while manufacturing only consisted of primary products that amounted to 3% of the country’s GNP. However, by expanding its manufacturing sector to simple products like textiles, and eventually sophisticated goods like automobiles and computers, total exports represented over 40 percent of Korean GNP. A result of this was that “the compound annual growth of per capita income was well in excess of 7 percent, making it one of the fastest growing economies in the world during this period” (Westphal 43).Screen Shot 2016-03-17 at 9.07.37 PM

South Korea has earned its rank as the eleventh largest global trading nation, exploding in trade value from $134.9 billion in 1990 to beyond $857.3 billion in 2008. Trading partners of the country originally included Japan, Europe, and the United States, but eventually a large percentage of total Korean exports ended up in China. By 2008, Korea had trade agreements with over 220 countries. The sophistication of the manufactured exports of Korea has increased over time, resulting in a current primary export market of chemicals, automobiles, computers, and other forms of high-level technology (Bark 24-36).

With the rise of corporate manufacturing in South Korea, many family-controlled conglomerates have risen with the aid of government policies that allowed them to benefit from tax advantages, exceptional loans, anti-labor policies, and various government contributions. A prime example of this consists of the dominant presence of Samsung in Korean economic activity and daily life. Aside from the penetration of Samsung in Korean education, electronics, amusement parks, life insurance, medicine, and housing, the company accounts for twenty percent of Korean exports and roughly seventeen percent of the annual GNP (Estrin).

When examining the success of Samsung in Korea, it is also important to assess the level of corruption that may be occurring within the realms of labor and management. In 2013, it was found that the Samsung Electronics factories had been contributing to various diseases of former employees. The corporation provided compensation to the workers who protested about this very issue, but Samsung refused to acknowledge any blame (Estrin).

Samsung demonstrates the power that multinational corporations have on an export-based economy like South Korea. “The former chairman of Samsung, Lee Kun-hee, was convicted of tax evasion and breach of trust in 2009, but he received a presidential pardon and returned to the chairmanship” (Estrin). The essentiality of Samsung to Korean economics can actually be deemed as frightening. It can be difficult for one to say that it is moral that the needs of the corporation outweigh the governmental law considering how fundamental Samsung is to Korean wealth.

Another problem that has emerged through the rapid development of South Korea is the massively increasing problem of income inequality. According to the IMF, forty-five percent of total income was being shared by the top ten percent of Korean earners. This percentage was the highest among its Asian-Pacific counterparts, with Singapore coming close at forty-two percent and Japan at forty-one percent (The Korea Economic Daily). This shouldn’t come as too much of a surprise considering most of the labor in South Korea is being focused in manufacturing while the top earners reside in the conglomerates that have been aided by government policies for decades.

This leaves the question then whether South Korea can be presented a successful model for export-driven developing economies. The empirical data demonstrates immense prosperity over the last three decades, especially when looking at the country’s change in GNP and global trade relations. However, when looking from a humanitarian lens, can we look past the increasing income gap, poor labor conditions, and the crippling power of large multinational corporations? It is important to assess all sides of the situation and weigh the pros and cons to international trade and its impact on developing economies. The blogs that follow will hopefully allow readers to examine the many outcomes, both expected and unexpected, of utilizing international trade as a method of participating in modern development.

Sources Cited:
Bark, Taeho. Ed. Byongwon Bahk and Gi-Wook Shin. Shorenstein APARC Working Papers. Stanford University, Feb. 2012. Web.

Estrin, James. “Samsung and the South Korean Success Story.” Web log post. NY Times Lens Blogs. NY Times, 13 Nov. 2015. Web.

“Korea’s Income Inequality Largest among Asian Nations…IMF Report.” The Korea Economic Daily. 16 Mar. 2016. Web.

Westphal, Larry E. “Industrial Policy in an Export-Propelled Economy: Lessons from South Korea’s Experience.” Journal of Economic Perspectives 4.3 (1990): 41-59. JSTOR. Web.

 

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