Korea has achieved rapid growth in a short period. The country has displayed global competitiveness in various fields such as mobile phones, semiconductors, automobiles, chemicals, and steelmaking. In recent years, its cultural content, including music, gaming, and webtoons, is emerging as an essential industry in itself, taking the lead in the Korean economy.

The Constitution of South Korea stipulates that “the right of property of all citizens shall be guaranteed.” In other words, South Korea is based on a market economy, and thus it allows individuals and businesses to freely conduct economic activities and guarantees their profits and properties.

However, the Constitution does not guarantee the limitless, unfettered pursuit of capitalistic free economy. The Constitution stipulates that an unjust situation shall be rectified if the abuse of capital is found to cause damage to people. This serves as a minimal mechanism to improve issues relating to the free market economy.

South Korea has achieved economic growth at an unprecedented speed. Observers called what the country has accomplished the “Miracle on the Hangang River”, as most of the country’s industrial facilities were destroyed during the three-year-long Korean War, and the country was devoid of capital and natural resources.

In the early 1960s, the country pushed ahead with export-oriented economic development plans. At first, the country’s major export items were mainly light industrial products manufactured in small factories, or raw materials. In the 1970s, the country invested in heavy chemical facilities and laid the basis for the export of heavy industrial products. The country is now leading the semiconductor and display sectors.

Hosting the 1988 Summer Olympic Games, commonly known as Seoul 1988, provided the country with the momentum to join the ranks of semi-advanced countries. The overseas mass media called South Korea one of the four Asian tigers along with Taiwan, Singapore, and Hong Kong. In December 1996, the country became the 29th member country of the OECD, which is largely composed of advanced countries.

South Korea’s exports, which amounted to only USD 32.82 million in 1960, surpassed the USD 10 billion mark in 1977 and reached USD 542.2 billion in 2019. The country’s GNI per capita was a paltry USD 67 in 1953 around when the government was established, yet rapidly increased to USD 32,115 in 2019.

South Korea established an export-oriented economic structure centered on large businesses while pursuing growth in the face of insufficient capital and resources. This led conglomerates to dominate industry, making the economic structure heavily reliant on exports and imports, thus leaving the country susceptible to external economic conditions.

In November 1997, a foreign exchange crisis hit the country, forcing it to turn to the IMF for a bailout. It was the first ordeal the country had to confront after years of rapid economic growth. The country took the drastic step to drive insolvent businesses out of the market and then pushed ahead with industrial restructuring. In only two years, the country regained its previous growth rate and price levels as well as a current account balance surplus. In the process, some 3.5 million people joined in the campaign to collect gold to help the government repay the fund borrowed from the IMF. A total of 227 tons of gold were collected. The world marveled at the South Koran people’s voluntary participation in the determined effort to repay its national debts.

While making concerted efforts to extricate itself from the foreign exchange crisis, the country benefitted from certain ancillary effects such as the adoption of the globalized economic and financial systems. However, the restructuring process also had side effects such as the government’s increased fiscal expenditure and higher income inequality.

After overcoming the economic crisis, the South Korean economy continued to record solid growth. The country’s GDP more than tripled from USD 504.6 billion in 2001 to USD 1,646.3 billion in 2019, the 12th largest total in the world. In fact, during the period 2008–2010, when most parts of the world were experiencing the devastating financial crisis, the country recorded an outstanding economic growth rate of 6.3%. The world’s major international news outlets referred to the economic accomplishment as a “textbook recovery.”

By 2010, South Korea had emerged as the world’s 7th largest exporting country. From 2011 to 2014, the country’s trade performance amounted to over USD 1 trillion for four consecutive years. The trade volume retreated slightly in 2015 and 2016 but rebounded to USD 1 trillion in 2017. South Korea’s foreign currency reserves amounted to USD 408.8 billion in 2019, and its short-term foreign debt ratio stood at 32.9% as of 2019, which sits around the middle range among G20 countries. The country’s sovereign credit rating has been at a stable level.

South Korea has adopted the open market economy, and is thus negotiating with other countries to sign more FTAs, as well as allowing foreigners to invest in the country freely while encouraging domestic businesses to invest in foreign countries equally freely. The country offers advantages to foreign investors under the long-term objective of establishing itself as a major financial hub and logistics base of Northeast Asia.

Market Opening and FTAs

The country has opened its market in most sectors, including agriculture. Koreans have traditionally attached great importance to agriculture, viewing it as the basis of the universe. In 2015, the country also opened its rice market, the final area of the agricultural sector not subject to full international competition.

The country is pushing ahead with the complete opening of the market through FTAs. The country plans to sign FTAs with numerous countries with the aim of expanding its economic territory worldwide.

As of 2017, South Korea signed FTAs with 52 countries, including Chile, EFTA, ASEAN, India, the European Union, Peru, the United States, Turkey, Australia, Canada, China, New Zealand, Vietnam, and Colombia. In 2017, the country initialed an FTA with five Central American countries—Costa Rica, El Salvador, Nicaragua, Honduras, and Panama.

Support for Foreign Direct Investment (FDI)

South Korea encourages FDI under the Foreign Investment Promotion Act. In South Korea, FDI refers to a foreigner’s acquisition of 10% or more of the equity share of a domestic business through an investment of not less than KRW 100 million, or a foreign-based business’s borrowing of a long-term (5 years or longer) loan from its parent business in a foreign country and the like.

Under the Foreign Investment Promotion Act, the government guarantees the profits earned by foreign investors and offers them a variety of benefits such as tax incentives, cash support, and mitigation of land-related regulations. The country also protects foreigners’ intellectual property rights and foreign exchange transactions. Therefore, foreign investors are allowed to take the profits they earn in South Korea out of the country, on the basis of creative and efficient operation.

Specifically, foreign investors are eligible for support from the South Korean government concerning the land required for the establishment of factory or research facilities, the purchase or lease or construction of a building, or the installation of electric or communication facilities. They may ask for installment payments for up to 20 years in cases of purchasing land owned by either the central government or a local government.

In addition, the South Korean government also provides cash support taking into consideration FDI amounts and the number of locals to be employed. The government is ready and willing to provide land and capital if a foreign business displays excellent technological prowess and maintains the employment of a given number of locals.

FDI in the country surged right after the foreign exchange crisis in 1998, with the increasing trend continuing. The reported amount of FDI as of 2019 stood at USD 23.3 billion; FDI had reached USD 20 billion for five consecutive years. The FDI amount suggests a balanced growth trend in terms of business types, had previously differed by investment type. The government plans to shift its policies in support of foreign investors and so called U-turn companies (Korean firms that refocus their investment on Korea as opposed to investing more abroad) to promote job creation.

The country also invites newly emerging countries with surplus funds, including China and the Middle Eastern countries, to invest in the service sector of the country with high added value. In order to create a favorable environment for FDI, the government hosts Foreign Investment Week (FIW) and provides a Red Carpet Service for foreign investors. The government also operates projects to promote FDI in local governments, including sending delegations to study investment feasibility and supporting investment projects.

The country also designates locals in the Unites States, the United Kingdom, China, and Japan as PR ambassadors for FDI in the country.


Investment to Become a Regional Logistics Hub

South Korea is making preparations for a period when its combined export/ import volume is expected to reach USD 2 trillion. The country is also striving to become a major logistics hub of Northeast Asia.

The country is investing heavily in automation and the sophistication of export/import cargo stevedoring facilities, with the aim of greatly enhancing its logistics competitiveness.

The country is striving to invigorate its air cargo network and expand industrial complexes situated close to airports.

Incheon International Airport has marked an all-time record in cargo volume. Growth continued, reaching 2.76 million tons in 2019. According to Airports Council International (ACI), since 2013, Dubai International Airport (UAE) has ranked 2nd in terms of international freight volumes, beating Incheon International Airport. However, Incheon International Airport is striving to take its spot back by securing a future growth engine through the introduction of the incentive system to logistics in 2018.

Air cargo has high added value. It accounts for about one quarter of the total transportation charge, although it accounts for only 0.2-0.3% of all forms of transportation cargoes in terms of weight. The South Korean government has expanded the cargo terminal of Incheon Airport and trains talented young people to take charge of airfreight logistics at the relevant educational institutions.

In addition, the aviation logistics system is being drastically improved by utilizing advanced information and communication technologies. Incheon International Airport is equipped with high-tech air logistics information systems for cargo reservations and cargo tracking and continues to make up for the errors.

With the opening of Terminal 2 in January 2018, the annual cargo capacity of Incheon International Airport has increased from the previous 4.5 million tons to 5.8 million tons.

It is noteworthy that Incheon International Airport has ranked first in the world for 12 consecutive years in the annual evaluation of airport services conducted by the ACI, a consultative council for more than 1,700 airports around the world. This testifies to the sheer quality of operation of Incheon International Airport. Furthermore, the airport became the first airport in the world to be registered with the Airports Council International Hall of Fame.

Located on the peninsula, South Korea has many international trade ports including Busan, Incheon, Pyeongtaek, Gwangyang, Ulsan, Pohang, and Donghae. In 2019, the volume of cargo handled at the country’s ports stood at 1,643.97 million tons (RT), increasing by 1.2% year on year.

The government is committed to diversifying export items and enhancing their quality through the annual selection of first-rate quality goods. The project, which began in 2001 with 120 items and 140 companies, expanded to 817 items and 917 companies in 2019, and their export share has also played a pivotal role in the Korean economy, accounting for about 40% of the country’s exports over the past five years. In particular, the proportion of small and medium-sized businesses increased from 37% in 2001 to 76% in 2019. Thus, it contributes to enhancing their brand images and facilitating their entry into the global market.

Information technology is the strongest element of the country’s economy, a sector that encompasses all the skills required for management innovation and administrative reform as well as ones relating to computer software, the Internet, multimedia, and communication devices.

The country’s well-established communication infrastructure was further enhanced with a 4G nationwide network; 5G (fifth-generation wireless technology) mobile internet services were already on offer in 2019. South Korea’s ICT-related exports amounted to USD 176.9 billion in 2019.

The country displays solid international competitiveness in cellphones, semiconductors, computers, and peripheral devices, and ceaselessly strives to maintain its leading position in these sectors amid the rapidly changing information technology environment.

South Korea is also one of the world’s largest car manufacturing countries. In 2019, the country ranked 7th in the world, with the number of cars produced reaching 39.51 million. In addition, the country boasts global competitiveness in other industries such as steel and chemicals.

As a relatively new export sector for South Korea, the export amount of cultural content rose significantly, from USD 2.3 billion in 2008 to USD 9.6 billion in 2018. Cultural content includes publishing, music, video games, characters, broadcasts, films and webtoons. Among these, South Korea focuses on the gaming industry and the game content.

In 2018, the domestic gaming industry generated approximately KRW 14 trillion in sales, and also about USD 6.4 billion in exports. Korea’s PC and mobile games are gaining popularity not only in Asia including China and Japan, but also in North America.

The government proposed a blueprint for becoming a leading country in the Fourth Industrial Revolution by supporting innovative start-ups and proactively responding to technological change.

As part of such efforts, a special committee on the Fourth Industrial Revolution will focus on creating an ecosystem for the Fourth Industrial Revolution, in which new ICT technologies and services can create new pathways. The committee will also serve as a strategic platform that prepares for the nation’s future through regulatory reform, basic research, human resources development, and strategic investment in future industries.

South Korea took the second spot in the 2020 Bloomberg Global Innovation Index, having reigned in the top three for nine consecutive years since 2012. The Bloomberg Innovation Index evaluates countries using seven metrics

At present, South Korea is putting every effort into transforming itself into a global economic system. Although the country accomplished rapid growth within a short period of time, this led to an imbalance in the development between large businesses and small and medium-sized enterprises (SMEs) due to the economic policy that was heavily dependent on the export led by large enterprises. As such, the need for shared growth was singled out as a potential solution to the problem. This was recognized as a global issue amid the global economic crisis in 2008.

In 2010, the Presidential Commission for Shared Growth for Large and Small Companies was launched with a view to settling conflicts between large-sized businesses and SMEs. The commission is assigned with the duties of fostering an atmosphere conducive to shared growth in industries, monitoring and announcing large businesses’ shared growth indices, designating sectors and items suitable for SMEs, and resolving conflicts between large businesses and SMEs based on a social consensus.

The 2010 G20 Seoul Summit was held, with the theme: Shared Growth Beyond Crisis. The G20 Summit was established following the global economic crisis in 2008, based on the view that it was necessary to have major emerging countries take part in international economic discussions, as the G7 Summit inevitably had certain limitations in this respect. It was pointed out that the international financial system had failed to reflect the fact that the share and role of emerging countries had expanded to a considerable extent over the previous three decades.

At the 2010 G20 Seoul Summit, South Korea assumed the position of the Chair, which indicates that the country’s active role in the international economic order.

The summit leaders adopted the G20 Seoul Summit Leaders’ Declaration along with the Seoul Summit Document for the framework for strong, sustainable and balanced growth. They also announced three annexes: Seoul Development Consensus for Shared Growth, the Multiyear Action Plan, and the Anti-Corruption Action Plan.

The Seoul Summit Leaders’ Declaration emphasized the role of developing and emerging countries in a move to put an end to the foreign exchange war between major countries and to reform the IMF, which used to be centered on industrialized countries. It also focused on the pressing need to stabilize global financial markets and provide support for impoverished countries struggling for economic development. This declaration went a long way towards enhancing the status of South Korea in global economic and financial markets.