Economic Systems of South Korea Term Paper

Pages: 12 (3747 words)  ·  Style: APA  ·  Bibliography Sources: 12  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

The government also fostered development by allowing South Korea to be a destination of several global manufacturers. The government also provided impulses for foreign and local investors through expansion of its network of free trade agreements. This brought change to the country and allowed the economy to grow.

Though South Korea can be seen to rely greatly on exports it makes to emerging countries, the country also reduced its reliance on exports to Japan. This can be seen in the decline of exports to Japan from 11% in the year 2000 to just about 6% in the year 2010. South Korea also decreased its reliance on imports from Japan though they still stood at roughly over 15% in the year 2010 which indicate that Japan still relies majorly on exports to South Korea Kushida & Oh, 2007()

The argument that can be made from these figures is that South Korea has managed to become an increasingly significant export market for Japanese products as is evidenced from the growth of exports from Japan to South Korea from roughly 6.5% in the year 2000 to 8.1% in the year 2010. Additionally, Japan has also experienced huge growth in production of export good for South Korea.

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When the Japan export situation is contrasted with South Korea's export situation, it can be seen that South Korea's manufactured goods have not been targeted majorly for the Japanese markets. For the same period from 2000 to 2010, South Korea's exports to Japan dropped from 4.9% to 4.1%. Though one may argue that this reduction over a 10-year period is small, it is important to remember that the two economies have experience consistent growth meaning that the 0.8% decline is actually much bigger than it seems.

In the early years of the 21st Century, South Korea largely depended on Japan to finance its budget deficit by receiving trade deficits from them. This expanded during the late 20th century. Iyoda (2005)

Term Paper on Economic Systems of South Korea Assignment

argues that the trade deficit of South Korea with Japan is both an old and a new problem. It is an old problem since it has stalled efforts made by South Korea to reduce its deficit. It can also be seen as a new problem because it plays a role in the stalled negotiations between the two governments which were aimed at creating an economic partnership between the two countries.

South Korea currently has 5 Free Trade Agreements (FTAs) that are in effect. The largest FTA is the Korea-U.S. Free Trade Agreement or KORUSFTA that was signed into action in 2007. This agreement is thought to be the major reason for South Korea's economic growth as a result of elimination of 95% of trade tariffs between the two countries. This has created a large market for South Korea's growing smartphone and technology industries Govella & Vogel, 2008()

Compared to South Korea, Japan is seen to prefer Economic Partnership Agreements (EPAs) rather than Free Trade Agreements (FTAs) which are what South Korea is seen to use. Japan is also a member of many international trade organizations such as G-20, G-8, the World Trade Organization (WTO), Asia-Pacific Economic Cooperation (APEC) and the Organization for Economic Co-operation and Development (OECD) Iyoda, 2005.

Japan seems to prefer the EPA route better than the FTA route since EPAs incorporate secure and sustainable investments in the discussions as well as ways of ensuring protection of intellectual property rights rather than just developing trade deals Johnston & McAlevey, 1998()

Technology industries in Japan and South Korea

South Korea

The technology industries of Japan and South Korea are the major export industries in the two countries. South Korea exports electronics, telecommunications, automobiles, ships and steel products. South Korea is home to two of the world's largest technology companies, Samsung and LG. In 2012, South Korea exported 10.3 million smartphones which was more than double the close to 5 million smartphones that had been exported in the previous year KatzKatrin & Cha, 2012()

Samsung and LG are the first and third companies in terms of the largest smartphone vendors in the world. The two companies have experienced steady growth over the years as a result of high demand of their products. This demand is fueled by the innovative nature of the products as well as lower cost of production that allows the products to be produced en masse. Though the exact contribution of the smartphone industry to the exports of South Korea is not known, it is assumed that Smartphones contribute roughly 1-3% of the country's total exports Kushida & Oh, 2007()

South Korea also holds other exports. It currently ranks as the 5th in automobile production in the world. This is because of the production of Hyundai and Kia which recently merged to form the Hyundai Kia Automotive Group KatzKatrin & Cha, 2012.

The two companies have been experiencing steady growth of their products to the U.S. And European markets which has increased the contribution of cars to South Korea's exports Kushida & Oh, 2007()

South Korea is also ranked at the top shipbuilder in the world. As of 2008, the country had slightly over 50% of the global shipbuilding market share. Notable shipbuilders in South Korea include Samsung Heavy Industries, Hyundai Heavy Industries, STX Offshore & Shipbuilding and Daewoo Shipbuilding & Marine Engineering. These four companies are the world's largest shipbuilding companies. The South Korean government also owns a majority stake in STX Europe which is the largest shipbuilder in Europe KatzKatrin & Cha, 2012()


Japan is currently the 5th largest importer and exporter in the world. Japan has experienced similar growth to that which has been experienced in other Asian countries as a result of lower production cost of products and services in these countries. Exports have had a significant effect on the Japanese economy both in the present and in the past. The Japanese have always believed that exports are part of Japan's image as a 'processing nation'. Which means that Japan relies greatly on importing raw materials then after value is added to them the output is exported to other countries. Japan is placed as the top country in the top 15 trading nations in the world Rosenbluth, 2011()

Japan's exports include motor vehicles, processed foods, machines, electronics, transportation equipment and steel. Japan is currently the 3rd largest country in automobile production and is often ranked as the most innovative nation in the world. It exports roughly 45% of its total automobile output. Japanese global motor vehicle companies include Toyota which owns the Toyota, Lexus, Hino and Daihatsu brands, Honda, Nissan, Suzuki, Mazda, Mitsubishi, Subaru and Isuzu. Of these companies, six of them are in the top 10 largest vehicle manufacturers in the world. Denso which is the world's largest automotive components manufacturer also calls Japan home. There are also four major global motorcycle companies that are based in Japan. These are Suzuki, Honda, Yamaha, and Kawasaki Arase, 2010()

Japan also contributes majorly to the global consumer electronics industries with companies such as Sony, JVC, Kenwood, Casio, Hitachi, NEC, Fujitsu, Nintendo, Panasonic, Sharp, Seiko, Canon, Yamaha, Citizen, Mitsubishi Electric, and Toshiba. These companies have merged and formed trade partnerships that help them become stronger than their South Korean competitors who present the stiffest competition in the world. Japan has 7 out of the top 20 largest chip manufacturers in the world Rosenbluth, 2011()

Lessons that can be learnt

Though both countries have taken different paths towards recovery after the economic crises, they can both learn from each other. South Korea has been experiencing a fast-paced growth compared to Japan's continued economic recession. Japan can thus learn the importance of increasing its sales or consumption tax from the current 5% to a higher percentage, for example 10% which would mimic South Korea's current value added tax (VAT) rate. This recommendation is based on Japan having the lowest sales tax in the whole Organization for Economic Co-operation and Development (OECD) region.

South Korea can also learn from Japan since the country currently has higher income and corporate tax rates. Therefore the country can increase its current income and corporate tax rates in order to increase the government revenue. However, Japan should reduce its income and corporate tax rates since some individuals and companies pay up to 50% of their salary as income tax. KatzKatrin and Cha (2012)

state that raising income tax rates can never be a solution to a country's economic burden. If anything, lowering income and corporate tax rates will encourage economic growth as more individuals and businesses will experience stimulated growth.

South Korea can also learn from Japan's borrowing model. 95% of Japan's economic debt is owed to the country's citizens meaning that only 5% is owed to other countries and organizations. This creates minimal pressure for the country to pay off its debt and lower the budget deficit. As a result of this, Japan experiences better interest rates for its loans since the country has only borrowed 5% from external investors. Additionally,… [END OF PREVIEW] . . . READ MORE

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APA Style

Economic Systems of South Korea.  (2013, June 15).  Retrieved September 23, 2020, from

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"Economic Systems of South Korea."  June 15, 2013.  Accessed September 23, 2020.