Đỗ Khánh Linh

Economic Report

Growth and changes of Korea’s Economy

Korea's economy has been going through an amazing growth since the 1960s. Moreover, it also
changes dramatically in the economic structure. Thanks to this growth and changes in the economic
structure, Korea has evolved from an agricultural country to a country with sophisticated economic
structure. This is considered as a “miracle of the Han River ''. The factors contributing to the success
of Korea and the lessons learnt from this country on the path to prosperity will be discussed in this
paper.

1. Introduction

It can be said that Korea had been through harsh historical phases since it was colonized and its
economy was independent. Before the year of 1945, North Korea was colonized by the Japanese
and had to strictly follow the Japanese colonizers’ policies. The manufacturing economy was small,
with almost no large-scale production units like the zaibatsu style, which was prevalent in Japan at
the time. North Korea's economic, investment and trade activities depended heavily on Japan. After
the Second World War, after getting rid of the Japanese domination, the Korean economy had an
inappropriate and backward economic structure, a slow-developed commercial system, and a lack of
qualified and skilled human resources (Chung, 2007). Since then, North Korea's economy has been
divided, then formed into two different economies with different directions belonging to two
independent countries: the Democratic People's Republic of Korea and the Republic of Korea. The
inner Korean War (1950-1953) made the already difficult economic situation in Korea even more
difficult. Economic, political and social difficulties continued even after the end of the inter-Korean
war (Chung 2007).

However, the Korean economy has experienced a period of rapid and sustained growth since the
late 1950s. This growth has brought Korea to an admirable result, the country grew from a middle-
income one to an industrialized country in just over four decades. Not only having fast and
sustainable growth, Korea's economy structure has miraculously changed. From an agricultural
country, Korea has risen to become a truly industrialized country, an economy with high labor
productivity, a growth economy based on knowledge. The transformation of regions and sectors in
the Korean economy is a miraculous result and the "miracle of the Han River" is a case worth
studying and learning.

This article will focus on the growth and changes in the economic structure of Korea since the war,
the reasons and explanations for those changes, and finally, draw lessons from the experience. for
Vietnam to study and learn. The next/following section of this study examines the growth and
structural changes of the Korean economy over time and explains the reasons for that change.
Section 3 will refer to the lessons that Vietnam or any other developing countries want to learn.
Section 4 will be the conclusion.

2. The growth and changes in the economy structure of  Korea

After 1953, the Korean economy has not only maintained a fast and sustainable economic growth
rate, but also undergone a fundamental change in economic structure. During the years of World
War II, Korea's national income was comparable to the average income of poor countries in Asia
and Africa. The economic situation became more serious after the end of the Korean War because
South Korea was then just a giant ruin. By 1960, however, per capita income had reached $1,110,
twice the per capita income of sub-Saharan African countries during the same period. By 1980,
Korea's per capita income had tripled its own income in 1960, 12 times in 2005 and 19 times in 2010
(Derek et al. 2007; Worldbank, 2011).

South Korea's economic growth rate is astounding. During the 1960s, the average growth rate of
Korea was 7.7%, in the following decade it was 10.3%, 8.6%, 6.7% and 4.6% respectively in the
70s, 80s, 90s of the twentieth century, and the first decade of the twenty-first century. The average
annual economic growth rate for the whole period 1960-2010 was about 7.4%. The growth rate of
the industry is always high, the annual average in the period 1970-2010 is 10.6%, agriculture 2.2%
and services about 7.1%. Industry became one of the driving forces (motivation) behind Korea's
growth.

The share of the agricultural sector decreased continuously from 29.2% in 1970 to 2.6% in 2010;
The share of industry and services in GDP doubled in the same period. The decline in the share of
agriculture means that the agricultural sector has a much lower growth rate than the growth rate of
industry and services. The rapid expansion of industry, especially manufacturing, was due to the
increase in capital, labor, and labor productivity. This has created conditions for modern technology
and highly qualified human resources as input factors for production to come into play. According to
Derek et al (2007), the growth rate of total factor productivity (TFP) contributed up to 75% of the
growth rate of real GDP per capita during 1960-2005.

The speed of economic restructuring of Korea since the war can be summarized in the table below.

Table 1: The speed of economic restructuring of Korea, 1953-2010

Economic
restructuring
Economic
transfer rate
restructuring
Period transfer rate (%) Period (%)

1953-1960 16,5 1953-1960 16,5

1960-1970 18,3 1953-1970 33,3

1970-1980 16,8 1953-1980 48,0

1980-1990 8,9 1953-1990 55,9

1990-2000 6,7 1953-2000 61,4

2000-2010 2,7 1953-2010 63,6

Source: Calculation based on the formula mentioned in Le Huy Duc et al (2003).

Research on the change of the economic structure of Korea based on the speed of structural
transformation shows that the structure of the Korean economy has changed radically if compared to
the phase from 1953 to 2010. During this period, the rate of economic restructuring in Korea was
63.6%. In this period, especially the years of the 50s, 60s, and 70s of the twentieth century
witnessed strong and fundamental changes in the structure of the Korean economy. of the Korean
economy. With this dramatic structural change, Korea has risen from a small-scale agrarian country
to a developed industrialized country with a knowledge-based growth economy.

A question arises here as to why Korea has grown and changed its economic structure so quickly
and sustainably. There are many explanations for Korea's miraculous growth and remarkable
economic structural change. The main reasons can be mentioned below.

Korea has always identified economic development goals and committed to achieving them as
paramount. Experience shows that there are differences between Korea and developing countries at
that time. Generations of South Korean leaders have always put economic growth as the top of
priority, especially during the period of military governments. Single-minded attention to economic
growth policies was a decisive factor in Korea's development (World Bank, 1983). In addition,
development strategies are developed for each stage, and resources and implementation time are
always guaranteed. For example, in the 1960s, Korea implemented both export-oriented and import-
substituting strategies. The 1970s, the strategy of shifting to heavy industry development combined
with improving the quality of technical and vocational training; into the 1980s, the development
strategy of economic integration and trade liberalization associated with the expansion of high-level
education; the 90s recorded an emphasis on the production of goods with high added value,
associated with the development of high technology; In the early years of the 21st century, Korea
implemented the development of a knowledge-based economy. These strategies have been
thoroughly and successfully implemented in two five-year plans (Chung, 2007).

Many argue that the change in economic institutions helps Korea maintain a high and sustainable
economic growth rate and transform the economic structure towards modernity. The institutions and
development models of Japan and the US are studied and implemented in Korea, especially the US
model in the years after the post-Korean war. The reform and dismantling of leadership methods,
institutional reform and traditional value systems have helped to form new generations of leaders
and institutions, and this change has helped accelerate the formation process, capital accumulation,
and economic development in Korea. The forces holding back industrialization such as aristocratic
groups, landowners and conservative bureaucratic groups, etc. were largely removed from society
under the Japanese colonial regime and in the American model. This has partly helped governments
to focus their resources on economic growth and development (Clifford, 1994).
Not only the government but also Korean people and businesses wanted to contribute to the
economic development. In other words, the private enterprises all behaved like state-owned
enterprises: that is, putting the interests (lợi ích) of the state above their own. To maximizing the
profit was hardly the ultimate goal of Korean businesses during the post-war economic construction
period. The whole country of Korea was trying to get rid of the post-war ruins, expanding the way of
doing business with the goal of achieving high economic growth almost at all costs (Darlin, 1990). In
addition, the Confucian system and extended family (traditional style) was also a factor that
increased the responsibility of family members to achieve achievements. This value made the
following generations make continuous efforts and strengthened the "value and reputation" of the
family. This partly explained the development of Korean economic groups and had led generations
of Korean businessmen to strive for success when given the opportunity (Kohut, 1995).

Many researchers also believe that Korea's rapid, sustainable growth and changing economic
structure are also due to the contribution of domestic and foreign workers who are willing to receive
wages lower than the quality and productivity of Korean workers. Korea has built a high-quality
workforce even in the context of a low per capita income country. Labor was the main input
contributing to Korea's economic growth after the war, contributing approximately 40% to economic
growth in the period 1963-1982, of which 60% was due to prolonging working time and high-skilled
workers. During the same period, more than 5% of total GDP was generated by education. The
marginal contribution of Korean labor was even higher than in Japan, and growth in Korea was more
labor dependent than Japan's during 1954-1981 (Chung, 2007).

One of the most important determinants of economic growth and structural change in Korea is the
role of governments. The size, speed and development orientation of the Korean economy is not
achieved by accident but is the result of the government's efforts to accumulate capital and promote
economic development. Recent studies have shown that the Korean government and its public
policies play an important role in increasing saving, investment, promoting economic growth, and
that makes a difference with other countries other developing countries.

This section has just mentioned the rate of economic growth and restructuring as well as the main
determinants of sustainable growth and the change of the Korean economic structure in the past half
century. There are many explanations for this miracle, but focusing on a few key highlights are the
role of the government, the economic development strategy, the change of economic institutions and
development models, and the contribution of the region. private sector and family values, and quality
human resources of Korea.