Economy of South Korea

Overview Following the Korean War, South Korea remained a country with less developed markets for a little more than a decade. The growth of the industrial sector was the principal stimulus to South Korea's economic development. In 1986, manufacturing industries accounted for approximately 30 percent of gross domestic product (GDP) and 25 percent of the workforce. Due to strong domestic encouragement and some foreign aid, Seoul's industrialists introduced modern technologies into outmoded or newly built facilities, increased the production of commodities—especially those for sale in foreign markets—and plowed the proceeds back into further industrial expansion. As a result, industry altered South Korea's landscape, drawing millions of labourers to urban manufacturing centres. A downturn in the South Korean economy in 1989 spurred by a decrease in exports and foreign orders caused concern in the industrial sector. Ministry of Trade and Industry analysts stated that decreased export performance resulted from structural problems, including an overly strong won, increased wages and labour costs, frequent strikes, and higher interest rates. The result was an increase in inventories and cutbacks in production at a number of electronics, automobile, and textile manufacturers, as well as at the smaller firms that supplied the parts. Factory automation systems were introduced to reduce dependence on labour, to boost productivity with a smaller workforce, and to improve competitiveness. Colonial period Japan colonized Korea, officially annexing it on 22 August 1910 as the Province of Choson. Japan encouraged an inflow of Japanese capital to Korea's less developed economy. The spearhead was the chaebols, diversified family conglomerates such as Hyundai, Samsung, and LG Corporation, which received state incentives such as tax breaks, legality for their exploitation system and cheap or free financing: the state bank facilitated the planning of concentrated loans by item according to each five-year plan, and by economic group selected to lead it. South Korea received foreign aid from the United States due to their Cold War alliance, and foreign economic and military support has continued for years. Chaebols started to dominate the domestic economy and, eventually, began to become internationally competitive. Under these chaebols, workers began to see their wages and working conditions improve, which increased domestic consumption. By the 1980s, the country had risen from low income to middle income. South Korea's real GDP expanded by an average of more than 8 percent per year, to US$230 billion in 1989, breaking the trillion dollar mark in the early 2000s. Nominal GDP per capita grew from in 1962 to in 1989, reaching the milestone in 2006. The manufacturing sector grew from 14.3 percent of the GNP in 1962 to 30.3 percent in 1987. Commodity trade volume rose from in 1962 to a projected in 1990. The ratio of domestic savings to GNP grew from 3.3 percent in 1962 to 35.8 percent in 1989. The most significant factor in rapid industrialisation was the adoption of an outward-looking strategy in the early 1960s. By adhering to state regulations and demands, firms were awarded subsidisation and investment support to develop their export markets in the evolving international arena. This developmental approach was frequently criticized at the time from outside Korea, including by the World Bank. Except for mining, most industries were located in the urban areas of the northwest and southeast. Heavy industries were located in the south of the country. Factories in Seoul contributed over 25 percent of all manufacturing value-added in 1978; taken together with factories in the surrounding Gyeonggi Province, factories in the Seoul area produced 46 percent of all manufacturing that year. Factories in Seoul and Gyeonggi Province employed 48 percent of the nation's 2.1 million factory workers. Increased income disparity between the industrial and agricultural sectors became a problem by the 1970s despite government efforts to raise farm income and improve rural areas 1990s and the Asian Financial Crisis For the first half of the 1990s, the South Korean economy continued a stable and strong growth in both private consumption and GDP. During the 1997 Asian financial crisis, after several other Asian currencies were attacked by speculators, the Korean won started to depreciate in October 1997. Actions by the South Korean government and debt swaps by international lenders have contained the country's financial problems. Much of South Korea's recovery from the 1997 Asian financial crisis can be attributed to labour adjustments (i.e. a dynamic and productive labour market with flexible wage rates) and alternative funding sources. with growth rates of 10.8% in 1999 and 9.2% in 2000. Growth fell back to 3.3% in 2001 because of the slowing global economy, decreased exports, and perceptions that corporate and financial reforms had stalled. After the bounce back from the 1997 Asian financial crisis, the economy continued strong growth in 2000 with a GDP growth of 9.08%. Thanks to industrialisation GDP per hour worked (labour output) more than tripled from US$2.80 in 1963 to US$10.00 in 1989. despite anemic global growth. The restructuring of chaebols, bank privatisation, and the creation of a more liberalised economy—with a mechanism for bankrupt firms to exit the market—remain an unfinished reform task. Growth slowed in 2003, but production expanded 5% in 2006, due to popular demand for key export products such as HDTVs and mobile phones. Like most industrialised economies, South Korea experienced setbacks during the Great Recession. Growth fell by 3.4% in the fourth quarter of 2008 from the previous quarter, the first negative quarterly growth in 10 years, with year on year quarterly growth continuing to be negative into 2009. Many sectors of the economy at the time reported declines, with manufacturing dropping 25.6% as of January 2009, and consumer goods sales dropping 3.1%. As in the 1997 Asian financial crisis, Korean currency also experienced massive fluctuations, declining by 34% against the US dollar. but South Korea was able to limit the downturn to a standstill at 0.2% in 2009. Despite the Great Recession, the South Korean economy, helped by timely stimulus measures and strong domestic consumption of products that compensated for decreased exports, was able to avoid a recession unlike most industrialised economies, posting positive economic growth for two consecutive years of the crisis. In 2010, South Korea made an economic rebound with a growth rate of 6.1%, signaling a return of the economy to pre-crisis levels. South Korea's exports recorded $424 billion in the first eleven months of the year 2010, already higher than its export in the whole year of 2008. at a breakfast meeting with chaebol business magnates Lee Kun-hee and Chung Mong-koo in 2013 The South Korean government signed the Korea-Australia Free Trade Agreement (KAFTA) on 5 December 2013, with the Australian government seeking to benefit its industries—including automotive, services, and resources and energy—and position itself alongside competitors, such as the U.S. and ASEAN. South Korea is Australia's third largest export market and fourth largest trading partner with a 2012 trade value of A$32 billion. The agreement contains an Investor State Dispute Settlement (ISDS) clause that permits legal action from South Korean corporations against the Australian government if their trade rights are infringed upon. The government cut the work week from six days to five in phases, from 2004 to 2011, depending on the size of the firm. The number of public holidays was expanded to 16 by 2013. South Korean economy decreased in the first quarter of 2019, which happened to be its worst drop since the Great Recession. GDP declined a seasonally adjusted 0.3 percent from the previous quarter. South Korea's prices rose more than 6 percent in July compared with last year, the fastest jump in nearly a quarter century. In July 2022, South Korea's Consumer price index rose 6.3 percent, the highest rate since November 1998. High-tech industries in the 1990s and 2000s In 1990, South Korean manufacturers planned a shift in future production plans toward high-technology industries. In June 1989, panels of government officials, scholars, and business leaders held planning sessions on the production of such goods as new materials, mechatronics—including industrial robotics—bioengineering, microelectronics, fine chemistry, and aerospace. This shift in emphasis, however, did not mean an immediate decline in heavy industries such as automobile and ship production, which had dominated the economy in the 1980s. South Korea relies upon exports to fuel the 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 liberalised in recent years, the agricultural market has remained protectionist due to 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 was four times that of the average price of rice on the international market, and it was believed that opening the agricultural market would affect South Korean agricultural sector negatively. In late 2004, however, an agreement was reached with the WTO in which South Korean rice imports will gradually increase from 4% 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. South Korea today is known as the Launchpad of a mature mobile market, where developers thrive in a market where few technology constraints exist. There is a growing trend of inventions of new types of media or apps, using the 4G and 5G internet infrastructure in South Korea. South Korea today has the infrastructure to meet a density of population and culture that has the capability to create strong local particularities. COVID-19 pandemic and 2020s economic situation South Korea faced a turning point in its economy in 2023. With the increasing challenges posed by China's growing manufacturing industry and the impact of COVID-19, South Korea's manufacturing sector is experiencing a consistent decline. According to SP Global, South Korea's export of manufactured goods to China, one of the biggest trading partners of South Korea, decreased by 4.4% in the fourth quarter of 2022 and by 31% in January 2023. On the other hand, their primary electronic manufacturing industry is facing a downturn. While information and communication technology maintained 34% of South Korea's total 2022 exports, at the end of the year, it decreased to 24%. Moreover, their forecasted debt-to-GDP ratio jumped to 41.2% of GDP in 2020 from 37.1% of GDP in 2019. In 2021, the government unveiled a $29 billion extra budget to aid small businesses and boost employment. In 2024, the government forecast a debt-to-GDP ratio was 47.4% of GDP. With downturns in many manufacturing industries, South Korea has been facing a recession. Many economists state the reason for industries' slowdown as deteriorating global conditions. The inflation rate in South Korea is regularly rising, and the problems in the domestic economy, such as household debt, population problems, and productivity problems, are the key fiscal and monetary factors that hold South Korea's economic growth. Due to the sudden evolution of COVID-19, private consumption decreased, and a bottleneck in the supply sector occurred. With this situation, the Bank of Korea indicated that the consumer inflation rate rose about three percent after COVID-19 evolved. Assuming that South Korea's interest rate was low compared to other countries, raising house prices and household debt became one of the problems in South Korea's economy. As part of its response to the COVID-19 pandemic, the government introduced sizeable fiscal and liquidity support, including expanded employment-retention subsidies, emergency cash transfers, and loan-payment deferrals and guarantees for firms; measures the OECD later noted helped preserve jobs and limit household income losses. In April 2020, the government introduced two relief programmes: Key Industry Stabilization Fund, via the Korea Development Bank, to temporarily provide financing to sectors affected by the COVID-19 shock, and a temporary increase in the existing Employment Retention Subsidy () paid to employers who put workers on furlough instead of laying them off. To reach workers outside employment insurance, a temporary emergency employment stabilization allowance was introduced for "special-type" workers - which includes the self-employed and contractors - with pandemic-related income declines, with payments totalling over three months. Policy announcements in 2022–2023 included continued financial forbearance for small businesses and SMEs through extensions of loan maturities and repayment deferrals, alongside targeted relief for high energy costs via expanded energy vouchers for low-income households. The government also convened strategy meetings aimed at strengthening competitiveness in semiconductors and rechargeable batteries, and in March 2023, the government expanded tax incentives and other support intended to strengthen competitiveness in high-tech manufacturing, including semiconductors and rechargeable batteries. To stabilise the inflated economy, the government has passed the "Korean New Deal Program" to . This expansionary fiscal policy promoted private consumption and increased the number of jobs. This expansionary fiscal stimulus is designed to recover the economic and social impact of COVID-19 from the existing climate and environmental dangers. The New Deal policy is divided explicitly into healthcare and green industries. South Korea's Ministry of Economy and Finance asserted the New Growth Strategy 4.0 in August 2023. The New Growth Strategy suggests projects for South Korea's long-term industry growth. The South Korean government advocates these policies as a New Growth 4.0 project, which aims to generate tangible outcomes in the future by setting the focus of policy and investments towards emerging industries. To achieve these goals, the strategy outlines the following key guidelines: • Foster artificial intelligence and semiconductor industries and build up a collaborative ecosystem between businesses. • Dominate the global market of the Urban Air Mobility (UAM) industry. • Secure Clean Hydrogen Production Technology via Water Electrolysis. • Advance Autonomous Driving Technologies. • Promote the Battery Re-manufacturing and Reuse Markets. • Expand the Private Sector-led My Data Based Services. • Streamline the Ordering Process of Research Equipment or Facilities to Alleviate Administrative Burdens. Besides this, South Korea is one of the countries with excellent healthcare systems, biomedical technology, and AI technology. While South Korea's value in the medical industry is projected at around , the medical technology market is projected to reach . The annual projected growth rate of the medical industry is over 6%, which indicates a bright future for the industry. Many economists suggest that by adopting AI technology, South Korea will be a bio-medical industry-leading country. An article about the future data-driven healthcare industry in South Korea suggests that AI technology helps the medical industry provide customised medical services for patients and can utilise the benefits and costs. In April 2025, the incorporation of Korean government bonds into the "World Government Bond Index" was postponed from November this year to April next year. After being listed as a prospective candidate for incorporation in September 2022, it was successfully included in the regular market classification report in the second half of October 2024. Economic inequality ==Data==

The following table shows the main economic indicators in 1980–2021 (with IMF staff estimates in 2022–2027). Inflation below 5% is in green. Annual real GDP per capita growth was 1.9% in 2024. Median disposable income was $31,882 PPP in 2021. ==Sectors==

Agriculture and fishing Manufacturing Automobile automobile. The automotive line is a key sector in South Korea's industry. The automobile industry was one of South Korea's major growth and export industries in the 1980s. By the late 1980s, the capacity of the South Korean motor industry had increased more than fivefold since 1984; it exceeded 1 million units in 1988. Total investment in cars and car-component manufacturing was over US$3 billion in 1989. Total production (including buses and trucks) for 1988 totaled 1.1 million units, a 10.6 percent increase over 1987, and grew to an estimated 1.3 million vehicles (predominantly passenger cars) in 1989. Almost 263,000 passenger cars were produced in 1985—a figure that grew to approximately 846,000 units in 1989. In 1988 automobile exports totaled 576,134 units, of which 480,119 units (83.3 percent) were sent to the United States. Throughout most of the late 1980s, much of the growth of South Korea's automobile industry was the result of a surge in exports; 1989 exports, however, declined 28.5 percent from 1988. This decline reflected sluggish car sales to the United States, especially at the less expensive end of the market, and labour strife at home. South Korea today has developed into one of the world's largest automobile producers. The Hyundai Motor Group is South Korea's largest automaker in terms of revenue, production units and worldwide presence. Battery South Korean companies began developing batteries in the 1980s and started supplying them for EVs in 2009. In recent years, the global market share of the biggest three Korean battery firms (LG Energy Solution, SK On, and Samsung SDI) has only been second to China. In the 2020s, they began to transition away from EVs to energy storage due to demand. Electronics Electronics is one of South Korea's main industries. During the 1980s through the 2000s, South Korean companies such as Samsung, LG, and SK led South Korea's growth. Samsung and LG are major producers in electronic devices such as televisions, smartphones, display, and computers. Semiconductor In 2017, 17.1% of South Korea's exports were semiconductors produced by Samsung Electronics and SK Hynix. Semiconductor exports reached a record $15 billion in August 2025, an increase of nearly a third from 2024, contributing to total monthly exports of $58.4 billion. Pharmaceutical South Korea’s pharmaceutical industry is the world's 13th largest and is rapidly emerging as a global biopharmaceutical and CDMO hub. With a market size exceeding USD 21 billion in 2021 and high growth projected, the sector is driven by innovations in antibody-drug conjugates (ADCs) and strong CDMO capabilities. Key players include Samsung Biologics, Celltrion and Yuhan Corporation. Steel South Korea's steel industry is a vital, yet currently challenged pillar of its economy, dominated by major players such as POSCO and Hyundai Steel. The sector, which makes up 1.5% of its GDP, is experiencing a significant restructuring due to low-cost Chinese competition, sagging domestic demand, and high-cost decarbonization, thus shifting focus toward specialized, high-value, and eco-friendly steel production. Shipbuilding During the 1970s and 1980s, South Korea became a leading producer of ships, including oil supertankers, and oil-drilling platforms. The country's major shipbuilder was Hyundai, which built a 1-million-ton capacity drydock at Ulsan in the mid-1970s. Daewoo joined the shipbuilding industry in 1980 and finished a 1.2-million-ton facility at Okpo on Geoje Island, south of Busan, in mid-1981. The industry declined in the mid-1980s because of the oil glut and because of a worldwide recession. There was a sharp decrease in new orders in the late 1980s; new orders for 1988 totaled 3 million gross tons valued at US$1.9 billion, decreases from the previous year of 17.8 percent and 4.4 percent, respectively. These declines were caused by labour unrest, Seoul's unwillingness to provide financial assistance, and Tokyo's new low-interest export financing in support of Japanese shipbuilders. However, South Korea eventually became the world's dominant shipbuilder with a 50.6% share of the global shipbuilding market as of 2008. Notable Korean shipbuilders are Hyundai Heavy Industries, Samsung Heavy Industries, Hanwha Ocean, and the now bankrupt STX Offshore & Shipbuilding. Mining Most of the mineral deposits on the Korean Peninsula are located in North Korea, with the South only possessing an abundance of tungsten and graphite. Coal, iron ore, and molybdenum are found in South Korea, but not in large quantities and mining operations are on a small scale. Much of South Korea's minerals and ore are imported from other countries. Most South Korean coal is anthracite that is only used for heating homes and boilers. In 2019, South Korea was the 3rd-largest world producer of bismuth, the 4th largest world producer of rhenium, and the 10th largest world producer of sulfur. Construction Construction has been an important South Korean export industry since the early 1960s, and remains a critical source of foreign currency and invisible export earnings. By 1981, overseas construction projects, most of them in the Middle East, accounted for 60 percent of the work undertaken by South Korean construction companies. Contracts that year were valued at US$13.7 billion. In 1988, however, overseas construction contracts totaled only US$2.6 billion (orders from the Middle East were US$1.2 billion), a 1 percent increase over the previous year, while new orders for domestic construction projects totaled US$13.8 billion, an 8.8 percent increase over 1987. South Korean construction companies therefore concentrated on the rapidly growing domestic market in the late 1980s. By 1989, there were signs of a revival of the overseas construction market: the Dong Ah Construction Company signed a US$5.3 billion contract with Libya to build the second phase (and other subsequent phases) of Libya's Great Man-Made River Project, with a projected cost of US$27 billion when all 5 phases were completed. South Korean construction companies signed over US$7 billion of overseas contracts in 1989. South Korea's largest construction companies include Samsung C&T Corporation, which built some of the highest buildings and most noteworthy skyscrapers such as three consecutively the world's tallest buildings: the Petronas Towers, Taipei 101, and the Burj Khalifa. Defense During the 1960s, South Korea was dependent on the United States to supply its armed forces, but after the elaboration of President Richard M. Nixon's policy of Vietnamisation in the early 1970s, South Korea began to manufacture its own weapons. Since the 1980s, South Korea has begun exporting military equipment and technology to boost its international trade. Some of its key military export projects include the T-155 Firtina self-propelled artillery for Turkey; the K11 air-burst rifle for the United Arab Emirates; the Bangabandhu class guided-missile frigate for Bangladesh; fleet tankers such as Sirius class for the navies of Australia, New Zealand, and Venezuela; Makassar class amphibious assault ships for Indonesia; and the KT-1 trainer aircraft for Turkey, Indonesia, and Peru. South Korea also exports various core components of other countries' advanced military hardware. Those hardware include modern aircraft such as F-15K fighters and AH-64 attack helicopters which will be used by Singapore, whose airframes will be built by Korea Aerospace Industries in a joint-production deal with Boeing. In other major outsourcing and joint-production deals, South Korea will facilitate the sales of Mistral class amphibious assault ships to Russia that will be produced by STX Corporation. The deal was cancelled in 2014 due to Russia's actions in Ukraine and the ships were sold to Egypt instead. South Korea's defence exports were $1.03 billion in 2008 and $1.17 billion in 2009. Education Energy Finance and banking Healthcare Housing Retailing Mass media and entertainment Telecommunications Tourism In 2012, 11.1 million foreign tourists visited South Korea, making it one of the most visited countries in the world, up from 8.5 million in 2010. Many tourists from all around Asia visit South Korea which has been due to the rise of the Korean Wave (Hallyu). Seoul is the principal tourist destination for visitors; popular tourist destinations outside of Seoul include the major coastal city of Busan, the Seorak-san national park, the historic city of Gyeongju, and subtropical Jeju Island. == Science and technology ==

Transportation Water supply and sanitation ==Government policies and labor market==

Government expenditure in South Korea accounted for 35% of its GDP. From the 1960s to the 1980s, when Korea's economic development was concentrated, the government's finances were mainly focused on economic development. The proportion of government finances devoted to social development was relatively insignificant. The government's fiscal scale gradually expanded with the consolidated fiscal balance reaching 23.1% of South Korea GDP by 1981, but the government implemented a strong fiscal austerity policy aimed at economic stability, and the relative fiscal scale shrank significantly to the 15% range. Although targeted price stability was achieved, reduced government finance could not fulfill its original function, and the social development sector, which was relatively out of interest in government expenditure, was hit hard. Under these circumstances, the expansionary fiscal stance has been promoted "for the normalization of fiscal functions" since the 1990s. During the Kim Young-sam administration, taxes were increased to support expansionary finances. This also led to an increase in welfare expenditure. The Kim Dae Jung administration established a welfare system by introducing the National Basic Livelihood Security System, while the Roh Moo Hyun administration set an annual welfare expenditure growth rate of 10% and tried to allocate budgets to the welfare sector first. However, in 2008, the Lee Myung Bak government implemented a tax reduction policy that significantly lowered the tax rates of income tax, corporate tax, and comprehensive real estate holding tax. Park Geun Hye administration adopted ‘no-tax increase’ policy stance, continuing the Lee Myung Bak administration's tax reduction stance. In the 2010s, the role of government in the national economy is growing, with increasing government expenditure to support an increasing aging population. But the growth rate of the national budget varies across administrations, reflecting shifts in fiscal policy between expansionary and austerity stances. Under the Moon Jae-in administration, the 'year-on-year growth rate of the national budget' steadily increased after its inauguration in 2017, reaching nearly 9% from 2019 onward. However, with the transition to the Yoon Suk-yeol administration, the growth rate slowed to around 5% and further declined to approximately 2.5% in 2025 budget. Lee Jae-myung administration has allocated a record-high budget of 728 trillion KRW for 2026, with the year-on-year growth rate rising again to around 8%. == Foreign trade==

South Korea is ranked as one of the top-10 global exporter, driven by high-tech manufacturing, with semiconductors, automobiles, and shipbuilding as major industries. Key exports also include electronics, chemicals, steel, and machinery. Trade statistics ==Mergers and acquisitions==

Since 1991, there has been a steady upward trend in South Korean M&A until 2018 with only a short break around 2004. Since 1991, around 18,300 deals in, into or out of South Korea have been announced, which sum up to a total value of over 941 bil. USD. 2016 has been the year with the largest deal value (1,818 in bil. USD) and the most deals (82,3). Target industries are distributed very evenly with no industry taking a larger share than 10%. The top three target industries are electronics (9.7%), semiconductors (9.1%) and metals and mining (7.7%). However, over 51% of the acquiring companies originate from the financial and brokerage sector. ==See also==