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Six Markets to Watch: South Korea
The Backwater That Boomed
MARCUS NOLAND is Executive Vice President and Director of Studies at the Peterson Institute for International Economics and a Nonresident Senior Fellow at the East-West Center.See more by this author
South Korea’s development over the last half century has been nothing short of spectacular. Fifty years ago, the country was poorer than Bolivia and Mozambique; today, it is richer than New Zealand and Spain, with a per capita income of almost $23,000. For 50 years, South Korea’s economy has grown by an average of seven percent annually, contracting in only two of those years. In 1996, South Korea joined the Organization for Economic Cooperation and Development, the club of rich industrialized countries, and in 2010, it became the first Asian country and the first non-G-7 member to host a G-20 summit.
To call South Korea an emerging market, therefore, is a bit of an anachronism. The country is a rich, technologically advanced, mature democracy with an impressive record of innovation, economic reform, and sound leadership. Yet South Korea is not exactly a developed market, either. The value of its exports plus imports (at $1.25 trillion a year) exceeds its national income (at $1.1 trillion). That openness, along with the lack of protection provided by a bloc such as the EU, subjects South Korea to greater market volatility than other major industrialized countries and presents some serious challenges. So, too, does its highly concentrated corporate sector, aging population, and politically dangerous neighborhood. South Korea may well be more dynamic than some developed economies, making it attractive to investors, but it is also much riskier.
SO LONG, KOREA DISCOUNT
Given South Korea’s extraordinary accomplishments, it is tempting to try to distill the secrets of its success, so that they can be bottled and used elsewhere. But South Korea’s remarkable leap from poverty to riches owes to a unique set of historical circumstances.
Soon after the division of the Korean Peninsula, in 1945, South Korea already had in place the building blocks for growth: an educated population, property rights, land reform that boosted productivity, and the institutions of modern capitalism. But then came the Korean War, which devastated the country. Investment did not take off until the country began to rebuild in the 1960s, when the authoritarian president Park Chung-hee (father of the current president, Park Geun-hye) embarked on a set of policy reforms that encouraged domestic saving and opened the economy up to international trade.