The Korean Economy and Future Opportunities
for New Zealand
June, 2006
Jung Taik HYUN President
Korea Development Institute
1. Transformation of the Korean Economy (1945-2005)
2. The Current Status of the Korean Economy
ContentsContents
3. Challenges Ahead
5. Korea and New Zealand – Economic Opportunities
4. Korea’s Efforts for Globalization
1. Transformation of the Korean Economy (1945-2005)
4
1.1 Overview - Per Capita Income1.1 Overview - Per Capita Income
Liberationfrom JapaneseColonial Rule
Six 5-Year-Economic- Development Plans
FinancialCrisis
200419801961 1970 1995
5,000
10,000
67 89
11,432
7,355
1953
Per Capita Income (US$)
1990
1945
14,193
OECDMember
100(1964)1,000(1977)
1998 2005
16,291
5
Agriculture, fisheries, and mining
45%
Manufacturing15%
Services40%
Services29%
Agriculture, fisheries, and mining
63%
Manufacturing8%
< Employment Structure >
1963
1963
Agriculture, fisheries,and mining
6%Manufacturing
19%
Services75%
2005
Agriculture, fisheries,and mining
4%Manufacturing
28%
Services68%
2005
1.1 Overview - GDP Structure & Employment Structure1.1 Overview - GDP Structure & Employment Structure
< GDP Structure >
6
CapitalShortage
WeakTechnology Base
UnderdevelopedPrivate Sector
AbundantLabor
StrongEconomic will
High Level ofEducation
?
< Economic Conditions of the Early 1960s >
1.2 Economic Take-Off with Outward-looking Development Strategy (1/5)
7
Economic Growth
Reproduction
S
ExportPromotion
ManufacturingProcessing
PrivateEnterprises
Government
TechnologyDevelopment
Financial Tax Support
Well-educated Labor force
Foreign TechnologyImports
Capital Good Imports
Raw Material Imports
Foreign Capital Inducement (Economic Aids External Debt)
S
< Working Mechanism of Outward-looking Development Strategy >
1.2 Economic Take-Off with Outward-looking Development Strategy (2/5)
8
< Growth in Imports and Exports >
0
20
40
53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04
(% of GDP)
Imports
Exports
Trade balance
1.2 Economic Take-Off with Outward-looking Development Strategy (3/5)
9
Policy Change Toward
HCI Development
Iron and Steel
Electronics
Petro-Chemical
Products
Automobile
Ship-building
Machinery
Mobilizing Financial Resources
Selecting National Champions(“Chaebol”)
1.2 Economic Take-Off with Outward-looking Development Strategy (4/5)
10
ExportCommodity
Profile
1960 1970 1990 1999
1980
HCI Product
Agricultural Product
Light Industry Product
50%
Wig Automobile SemiconductorTextile
2003
Semiconductor, Mobile Phone, DTV, Display, Automobile, Ship-building, etc.
79.8%
14.1%
6.1%
< Changes in Export Commodity Profile: From Light Industry to Heavy Industry >
1.2 Economic Take-Off with Outward-looking Development Strategy (5/5)
11
< Pitfalls of the Government-led Economic Development >
Financial repressiondue to prolonged
government intervention
High inflation andlarge fiscal deficits
Over-investment in HCIs
Negative economic
growth (-3.9%) and
political crisis in 1980
• Inefficient resource allocation• Macroeconomic instability• Rising inequality
Change in policy stance:
“Liberalization and Stabilization”
1.3 Changes in the Development Strategy (1980-97)
12
Increased vulnerability
to external shocks
IMFrescue package
• Massive capital outflow• Denied rollover of short-
term external debt
Continued government intervention/
Weak prudential regulation
Large NPLs in the
financialsector
South-east Asiancrisis
Highcorporate
debt leverageWidesprea
dmoral hazard
< The Crisis of 1997 >
1.4 Delayed Economic Reforms and the Financial Crisis (1/2)
13
Cleaning up non-performing loans
Cleaning up non-performing loans
Acceleratingliberalization
Acceleratingliberalization
Improving corporate governance
Improving corporate governance
Expanding social safety net
Expanding social safety net
- Early graduation from the IMF program- Foreign reserves of more than USD 200bn in 2005
- Early graduation from the IMF program- Foreign reserves of more than USD 200bn in 2005
Improved external positions
Improved external positions
- GDP growth: -6.7% (1998) 10.7% (1999)- Unemployment: 6.8% (1998) 3.7% (2005)
- GDP growth: -6.7% (1998) 10.7% (1999)- Unemployment: 6.8% (1998) 3.7% (2005)
Rapid economic recovery
Rapid economic recovery
- Debt-equity ratio: 396% (1997) 182 (2002) - No. of banks: 33 (1997) 20 (2001)
- Debt-equity ratio: 396% (1997) 182 (2002) - No. of banks: 33 (1997) 20 (2001)
Stronger corporate and financial sector
Stronger corporate and financial sector
1.4 Delayed Economic Reforms and the Financial Crisis (2/2)
2. The Current Status of the Korean Economy
15
KDI 경제전망
Note: P denotes Preliminary.
Source: KDI
2005p 2006
Yearly 1/4p 2/4 3/4 4/4 Yearly
GDP 4.0 6.1 5.8 5.1 4.4 5.3
Private Consumption
3.2 4.8 4.8 4.7 4.4 4.8
Facility Investment
5.1 6.9 9.9 10.4 7.0 8.4
Merchandise Exports
9.7 11.6 12.6 12.6 11.8 11.9
(y-o-y, %)
I. 최근 경제동향 / 15
2.1 The Current Status of the Korean Economy
16
세계경제 여건 - 리스크 요인I. 최근 경제동향 / 16
Possibility of further increase in petroleum price Possibility of further increase in petroleum price
Low production capacity of petroleum producing countries
Geo-political risks such as Iranian nuclear crisis
- WTI ($/bbl): 61.17 (Dec. 2005) → 70.19 (June 14, 2006) … 14.7%
- Dubai ($/bbl): 53.49 (Dec. 2005) → 66.77 (June 14, 2006) … 24.8%
Low production capacity of petroleum producing countries
Geo-political risks such as Iranian nuclear crisis
- WTI ($/bbl): 61.17 (Dec. 2005) → 70.19 (June 14, 2006) … 14.7%
- Dubai ($/bbl): 53.49 (Dec. 2005) → 66.77 (June 14, 2006) … 24.8%
Further decrease in exchange rate (Korean Won/US$)Further decrease in exchange rate (Korean Won/US$)
Sustaining Current account imbalance of the US
Expansion of the Korean economy
- Won/Dollar: 1011.9 (Dec. 2005) → 954.1 (June 13, 2006) … 6.1%
Sustaining Current account imbalance of the US
Expansion of the Korean economy
- Won/Dollar: 1011.9 (Dec. 2005) → 954.1 (June 13, 2006) … 6.1%
2.2 Risk Factors of the Korean Economy
3. Challenges Ahead
18
3.1 Potential Growth Rate and Productivity (1/2)
Economic growth of Korea depended on resources such as capital and labor.Economic growth of Korea depended on resources such as capital and labor.
Korea has shown one of the highest saving ratio.
It is well endowed with highly educated and well trained labor.
Korea has shown one of the highest saving ratio.
It is well endowed with highly educated and well trained labor.
0
20
40
60
80
100
1970 1980 1990 2000 2005
Kindergarten Elementary Middle High College
(%)< School Enrollment Rate >
the number of enrollments in a specified age range Note: Enrollment rate = --------------------------------------------------------------------- the whole population in the same age range
19
(%)
1991 2000∼ 1991 1997∼
(before economic crisis)
1.01.0
6.1
1.21.2
6.9
0.90.9
4.8
2003 2012∼
(after economic crisis)
Productivity
Labor
Capital 3.33.3 3.93.9
2.32.3
1.81.8 1.81.8
1.61.6
잠재성장률 추세변화와 요인III. 한국의 잠재 경제성장률과 그 제고방안 / 19
< Potential Growth and Contributions >
Source: KDI
3.1 Potential Growth Rate and Productivity (2/2)
Growth depending on factor accumulation ran its course, and productivity should lead further growth.Growth depending on factor accumulation ran its course, and productivity should lead further growth.
Education and training system toward the knowledge-based economy Promoting public and private R&D activities Creating an investment-friendly environment Upgrading the institutional quality
Education and training system toward the knowledge-based economy Promoting public and private R&D activities Creating an investment-friendly environment Upgrading the institutional quality
20
0.25
0.27
0.29
0.31
0.33
0.35
0.37
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Payroll,Urban Employees
Total Income, Urban Employee
Total income, Entire Workforce 0.342
0.359
0.290
3.2 Income Disparity Income Disparity
Income disparity increased, reflecting structural changes in industries and labor markets. Income disparity increased, reflecting structural changes in industries and labor markets.
Income gap widened among wage earners (66% of workforce) & among the
whole households including self-employed & unpaid workers (33% of workforce).
However, the disparity shows the sign of decline since early 2000s.
Income gap widened among wage earners (66% of workforce) & among the
whole households including self-employed & unpaid workers (33% of workforce).
However, the disparity shows the sign of decline since early 2000s.
< Gini-Coefficients (1992-2003) >
21
Positive correlation between RCA (or profitability) and the share of value added by technological level. Positive correlation between RCA (or profitability) and the share of value added by technological level.
11
< Korea : Share of Employment by Technological Level >
중고기술제품
중저기술제품
3.3 Industrial Restructuring and Challenges from China (1/5)
0%
20%
40%
60%
80%
100%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
High tech
Low tech
Medium-high tech
Medium-low tech
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
High tech
Low tech
Medium-high tech
Medium-low tech
Employment share in low tech continues to decrease, while employment share remains unchanged in high tech despite its increase in the share of value added.
Employment share in low tech continues to decrease, while employment share remains unchanged in high tech despite its increase in the share of value added.
Source: Korea National Statistical Office, Mining and Manufacturing Survey
< Korea : Share of Value Added by Technological Level >
22
3.3 Industrial Restructuring and Challenges from China (2/5)
0
0.5
1
1.5
2
2.5
1993 20041993 2004 1993 2004 1993 2004
US
China
Korea
Japan
China
China
China
Korea
Korea
Korea US
US
US
Japan
Japan
Japan
Medium-low tech Medium high tech High techLow tech
During 1993-2004, Korea gained a CA in high-tech products and improved medium-high tech, while CA declined in medium-low tech and Low tech products.
During 1993-2004, Korea gained a CA in high-tech products and improved medium-high tech, while CA declined in medium-low tech and Low tech products. China showed similar phases of restructuring and became challenges to the Korean
economy.
China showed similar phases of restructuring and became challenges to the Korean
economy.
23
China’s export structure is rapidly converging with that of Korea. China’s export structure is rapidly converging with that of Korea.
< Korea >
Source: UNCOMTRADE
0%
20%
40%
60%
80%
100%
1993 2004
Medium-high tech
High tech
Low tech
Medium-low tech
Non-manufacturing
22
Particularly, China achieved a large increase in the export of IT products. Particularly, China achieved a large increase in the export of IT products.
< China >
0%
20%
40%
60%
80%
100%
1993 2004
Medium-high tech
High tech
Low tech
Medium-low tech
Non-manufacturing
3.3 Industrial Restructuring and Challenges from China (3/5)
24
Korea maintained CA in some high-tech products such as radio, TV and communication products. Korea maintained CA in some high-tech products such as radio, TV and communication products.
66
0
0.5
1
1.5
2
2.5
3
1993 2004
0
0.5
1
1.5
2
2.5
3
3.5
1993 2004
Japan
US
Korea
China
3.3 Industrial Restructuring and Challenges from China (4/5)
China
Korea
US
Japan
Japan
US
Korea
China
0
0.5
1
1.5
2
2.5
3
3.5
4
1993 2004
<Computers & Office products> <Semiconductor & Electronic Valves>
<Radio, TV & Comm Equip>
Although China gained CA in some high-tech products, technology level involved in the production process of these products differs greatly in China.
* Production of some products only needs simple labor-intensive process. While Korea’s CA in semiconductors and elec.valves decreased, it is still higher than
other major developed economies.
Although China gained CA in some high-tech products, technology level involved in the production process of these products differs greatly in China.
* Production of some products only needs simple labor-intensive process. While Korea’s CA in semiconductors and elec.valves decreased, it is still higher than
other major developed economies.
250
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
1993 2004
Japan
US
Korea
China
3.3 Industrial Restructuring and Challenges from China (5/5)
Among major Medium-high tech products,Korea has achieved CA in auto products since 2001.Among major Medium-high tech products,Korea has achieved CA in auto products since 2001.
< Major Medium-High tech Products ><Motor Vehicles & Trailers> <Machines & Equipment>
0
0.5
1
1.5
2
2.5
1993 2004
China
Korea
US
Japan
Korea still has CDA in machines and equipment, however, CA index improved rapidly.
Korea still has CDA in machines and equipment, however, CA index improved rapidly.
26
3.4 Aging Society
< Share of the old (65+) >
0
5
10
15
20
25
30
35
40
60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50
(% of total population)
EU
Korea
Japan
US
Australia andNew Zealand
The speed of population aging is far higher in Korea than other major developed countries. The speed of population aging is far higher in Korea than other major developed countries.
Reforming the public pension and health insurance program Extending employment opportunities for female, elderly and disadvantaged groups
Reforming the public pension and health insurance program Extending employment opportunities for female, elderly and disadvantaged groups
4. Korea’s Efforts for Globalization
28
4.1 4.1 Korea’s Efforts for Globalization (1/2) (1/2)
Korea pursues to be a global leader, through FTA and the plan to be a Northeast Asian Economic Hub. Korea pursues to be a global leader, through FTA and the plan to be a Northeast Asian Economic Hub.
Korea aims to enhance regional cooperation and to be a center of R&D, logistics and financial services in Asia.
It also endeavors to transform into an open and globalized economy, promoting FTA with a variety of economies.
Korea aims to enhance regional cooperation and to be a center of R&D, logistics and financial services in Asia.
It also endeavors to transform into an open and globalized economy, promoting FTA with a variety of economies.
Chile, Singapore, EFTA, ASEAN
USA, Canada, Japan, Mexico
China, EAFTA, India, MERCOSUR, EU
FTA completed
Negotiation in progress or to be started
FTA under consideration
< Korea’s Promotion of FTA >
29
4.1 4.1 Korea’s Efforts for Globalization (2/2)
Korea takes initiatives to improve political stability and economic welfare in the region and in the world. Korea takes initiatives to improve political stability and economic welfare in the region and in the world.
Korea completed FTA talks with Chile, Singapore, EFTA and ASEAN.
It started FTA talks with the USA.
It opens new era of peace and prosperity in the region through regional cooperation and freer trade.
Korea completed FTA talks with Chile, Singapore, EFTA and ASEAN.
It started FTA talks with the USA.
It opens new era of peace and prosperity in the region through regional cooperation and freer trade.
Korea-US FTA will contribute to upgrading Korea for further prosperity. Korea-US FTA will contribute to upgrading Korea for further prosperity.
The increased trade, FDI and welfare due to FTA will consolidate its momentum for sustained economic growth.
More active participation into global production network will improve efficiency and competitiveness of its industries.
Upgrading social system and institutions to meet global standard will provide new opportunities for future development.
The increased trade, FDI and welfare due to FTA will consolidate its momentum for sustained economic growth.
More active participation into global production network will improve efficiency and competitiveness of its industries.
Upgrading social system and institutions to meet global standard will provide new opportunities for future development.
5. Korea and New Zealand – Economic Opportunities
31
5.1 5.1 K-NZ Bilateral Relationship in Merchandise Trade K-NZ Bilateral Relationship in Merchandise Trade (1/3) (1/3)
Korea was the 7th largest trade partner of New Zealand in 2005. Korea was the 7th largest trade partner of New Zealand in 2005.
One of the most striking findings from the two nation’s trade relationship is the
complementarity.
Comparing the trade relationship between the two countries ten years ago, the
importance of Korea to NZ increased.
One of the most striking findings from the two nation’s trade relationship is the
complementarity.
Comparing the trade relationship between the two countries ten years ago, the
importance of Korea to NZ increased.
$265 bil
$248 bil
export import
Korea New Zealand
$22 bil
$25 bil
export import
$595 mil
$890 mil
K to NZ NZ to K
< World Trade Volume > < Bilateral Trade Volume >
Year: 2005 Year: 2005
Source: UN Trade Data, 2005
32
5.1 5.1 K-NZ Bilateral Relationship in Merchandise Trade K-NZ Bilateral Relationship in Merchandise Trade (2/3)(2/3)
< Exports of Korea to NZ >
Chemical Products
17%
Automobiles15%
IT Equipment18%
Basic Metals13%
Food, Products & Beverages
12%
other15%
General Machinery
10%
Korea has build up comparative advantage in high tech manufacturing product. Korea has build up comparative advantage in high tech manufacturing product.
While Korea exported semiconductors, IT equipment and electronic parts, the
nation possessed disadvantage in natural resource.
While Korea exported semiconductors, IT equipment and electronic parts, the
nation possessed disadvantage in natural resource.
Source: UN Trade Data, 2005
Year: 2005
33
5.1 5.1 K-NZ Bilateral Relationship in Merchandise Trade K-NZ Bilateral Relationship in Merchandise Trade (3/3)(3/3)
< Imports of Korea from NZ >
other8%
Printing,
PaperProducts,
Publishing
6%
ChemicalProducts
5%Basic Metals
5%
AgricultureForestry,Fishery
37%
Food, Products& Beverages
39%
(million)277162
38
<Agriculture & Forestry,Fishery>
<Food, Products & Beverages>
Wood of coniferous
species
Fruit Bovine meat
Other cheese
vegetable
44
525
Food preparations
< Major Imports of Korea >
Major imports of Korea from NZ included wood and bovine meats. Major imports of Korea from NZ included wood and bovine meats.
Korea’s total imports to NZ was explained by food, beverage and Agriculture,
Forestry & Fishery. Primary ferrous metal products and paper products also explained about 6%
of exports to Korea respectively.
Korea’s total imports to NZ was explained by food, beverage and Agriculture,
Forestry & Fishery. Primary ferrous metal products and paper products also explained about 6%
of exports to Korea respectively.
Year: 2005
Year: 2005
34
5.2 Market Share of NZ in Korea5.2 Market Share of NZ in Korea
Wood of coniferous speciesWood of coniferous species
1990 2005
New Zealand
45.2
U.S
17.9
71.3
16.1
KoreaMarket
Fruit, fresh,dried, nesFruit, fresh,dried, nes
1990 2005
New Zealand
35.9U.S
29
44
9.7
KoreaMarket
Sheepskins and lambskinsSheepskins and lambskins
1990 2005
New Zealand
99.8
England
75
18 0.0
KoreaMarket
Bovine meat, frozenBovine meat, frozen
1990 2005
New Zealand
30.3
Australia
5
58
66.9
KoreaMarket
The share of NZ in Korea market soared up in 2005. The share of NZ in Korea market soared up in 2005.
In Wood , Fruit, Sheepskins and Bovine, the share of NZ in the Korea market
took more comparative advantages than other competitors.
In Wood , Fruit, Sheepskins and Bovine, the share of NZ in the Korea market
took more comparative advantages than other competitors.
35
5.3 Korea-NZ 5.3 Korea-NZ Bilateral Relationship in Service SectorRelationship in Service Sector
There should be large opportunities of the expansion of relationship between Korea and NZ in a variety of service sectors.
There should be large opportunities of the expansion of relationship between Korea and NZ in a variety of service sectors.
In 2004, it was estimated that overseas expenditure for education reasons
reached as much as $5.1 billion.
• In 2005, 10 million Koreans visited foreign countries and spent $1,239 for their trips.
In 2004, it was estimated that overseas expenditure for education reasons
reached as much as $5.1 billion.
• In 2005, 10 million Koreans visited foreign countries and spent $1,239 for their trips.
Overseas Expenditure - Korea
$1,770Trainingabroad
$1,770Trainingabroad
$3,378studying abroad
$3,378studying abroad
Year: 2004Unit: $mil
10,077,619
$1,239
8,825,585
$1,169
Tourists Expenditure per Capita
< Overseas Expenditure on Education & Training > < Outbound Tourists and Expenditure >
2004
2005
20042005
Year: 2004, 2005
Unit: person, $
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