We can observed that tot of Korea has increased from 76 billion to 126 billion in between 1979 and 1988. Why tot of Korea would increase in these 10 years?
Arab has stopped shipping oil to American and raised the price in 1973. Therefore, this action has caused oil crisis. Korea has suffers from the increases in oil prices. Besides that, Korea was too emphasized on exports instead of the expense of domestic consumer. It made Korea’s export become higher but import become lower. Korea’s tot increased. After than that, heavy industry exports have got a early success in 1980. Korea’s president Roh Tae-Woo has implemented a foreign policy which was ‘Nordpolitik’. This policy has standardized the relationship between North Korea, China and also Soviet Union and it made the trade with China and the Soviet Union increased. This policy has fully promoted Korea’s economy. Moreover, Korea has implemented ‘Sixth Five Year Plan’ in 1985 and it remained the trend away from heavy industry toward export- oriented consumer products. Korea was affected by ‘three lows’ which were low oil price, low international interest rates and low value of U.S dollars. These three lows resulted in improvement of the export and tot of Korea.
We can observe that there had two low tides in the Korea’s tot which were in the year of 1988 and 1991 and also in the year of 1993 and 1996.
First, the domestic consumption of luxury items such as high tech electronics products was growing obviously and it reduced the exports. Moreover, South Korea joined the WTO government procurement agreement in 1988. This agreement has eliminated the restrictions of the local products that government must purchase. Besides that, Korea has also promoted import liberalization in 1990. These two measures have absolutely increased the imports though reduced the tot of Korea.
The second low tide was happening in 1993 to 1996. Korea has become a founding member of the World Trade Organizations (WTO) in 1995. According to the WTO reports, Korea’s Liberalization efforts were spurred on in part because of the Uruguay Round. It has some commitments which have included the cutback of tariff, compromise in agricultural and offers in many service sectors. We know that the reformation of agricultural was driven mainly by extraneous requirements instead of the efficiency considerations and the welfare of consumers. In order to fixate the tariffs of rice, Korea promise to expand its minimum access commitment. Consequences, Korea opened its rice market of import and rice import has risen for3 % over 10 year period.
We were able to recognize the tot of Korea was increasing rapidly to 136 billion in 1997. Why?
In order to recover the lost from Asian Financial Crisis in 1997, Korea has corporate with International Monetary Fund (IMF). After that, IMF required Korea to have some reformations in their trade liberalization. First, they have to remove their trade-related policies in compliance with the WO commitments. Second, they have to cancel their import diversification program by decreasing the number of items that subject to adjustment tariffs. Third, they also need to eliminate the constraints on foreign investment in its stock market as well as non citizens can make commercial and personal land purchases. Due to the reformation in the trade liberalization, Korea’s import has totally decreased and tot increased.
The reason for the GDP decreases in 1997 until 1999
We can observe that the GDP of Korea decreased from 557.503 billion to 374.241 billion in between the time of 1997 and 1998. It was because that the seeds of the Asian Financial crisis were sown during the previous decade when Korean was experiencing unprecedented economic growth. The economic crisis of 1997 occurred due to many reasons. Some of these reasons were the insufficient of risk management capabilities of enterprise and financial institutions as well as the low foreign exchange flows in Korea Korea was having a government-led economic development model during the time of 1997. The introduction of global economic trends had been interrupted by the government because of their over-intervention. As a result, the credibility of South Korea declined. Moreover, Korea government conducted a similar development strategy with China which was ‘First Wealthy”. It means that Korea government provided a lot of favorable policies for domestic enterprises to allow them to develop rapidly as well as to promote the economic development. This strategy has caused a lot of companies to develop and expand their business without considering their capability and ability on operations, and this has led to a bubble on business operations.
The financial crisis that happened in 1997 has caused the dramatically declined in GDP of Korea. The exchange rates of Won and Dollars were affected as well. Korean Won has devalued sharply; the exchange rates and Dollar reached 1500 won in a blink of eye. However, the exchange rates dropped to 1100 won after one year, which is in the year of 1999. Other than that, the unemployment rate problem was one of the biggest problems in the 1997 financial crisis. The unemployment rate has reach 7% in 1998 because 1.5 million persons were fired in one year time. In conclusion, the reasons above described the reasons of decreasing in GDP in Korea.
We can observe that the GDP of Korea decrease from 1.123 trillion to 901.935 billion in between 2007 and 2009. It was because Korea has experienced a financial crisis in 2008. This financial crisis occurred due to the external causes of U.S subprime mortgage crisis. Korea is one of the countries that invest in US financial sector therefore their economic development was affected by U.S. subprime mortgage crisis.
This crisis has affected Korea financial markets and reduced the price of physical assets. The reduction of physical assets caused the house prices decreased. Therefore, there had no actual transaction in that time because there were a lot of people wanted to sell their house but no one wanted to buy. This situation has caused the economy shrink of household and companies as well as affected the stock price. As a result, the economy of South Korea has plunged into a vicious cycle because of this financial crisis in 2008.
We can observe that the GDP of Korea has increased constantly from 196.964 billion to 325.734 billion in between 1986 and 1991. Korea had three lows in 1986 which were low oil prices, low international interest rates and also low value of U.S dollar. These three lows have caused Korea’s GDP increased rapidly as well as their current account has reached a balance. However, the ‘six-fifth year plan’ that implemented in 1986 was affected by this three lows, it led to a general rise in domestic prices, stock markers and real estate prices. In order to solve these problems, Korean’s government has made drastic changes to the original plan and implemented the ‘Amendment Plan’ in 1988. The basic objectives of this amendment plan were to promote economic vitality, emphasize the fairness and impartiality of economic operations as well as pay attention on improving the living standards of the nationals. All of these objectives should base on the principle of ‘autonomy, stability and the coordination of welfare’. Through implemented “amendment plan”, the unemployment rate of Korea has decreased to 2.3% and it has achieved to full employment. Other than that, Korea has also implemented some welfare system as well such as minimum wage, the national pension system and the national medical insurance system which made their society has good indemnification. Moreover, the import rate of industrial products up to 99.99% in 1991. All of these reasons made the GDP of Korea increased constantly between 1986 and 1991. Last, ‘sixth five year plan period’ is a transitional period for South Korea to transform itself from authoritative politics to democratic politics.
Kim Young Sam has implemented ‘New Economy Five Year Plan’ in 1993 after he become the 14th president in South Korea. The goal of this plan was to bring South Korea’s economy into an advanced economic circle as well as lay an economic foundation for the reunification of North- South. In order to reform and create a new development momentum for the foundation of ‘New Economy Five Year Plan, Korea has first adopted a basic strategy which was ‘New Economy 100-day Plan’ in 1993. Fortunately, this 100-day plan has fully completed the reformation of the domestic economy and foreign economic departments in 1994 and 1996. Moreover, it has also improved the living standards of national in every aspect such as housing, environment, transportation, pension, welfare and so on. In conclusion, this New Economy Five Year Plan has promoted the economic development; push on social justice and economic justice, revitalized business management and so on. Through having this plan, the GDP of Korea in 1992-1996 has increased rapidly. It’s GDP still ranking 11th in the world in 1995.
We can observed that the GDP of Korea has increased from 533.052billion to 1.123 trillion in between 2001 t0 2007.
Bank of Korea said that South Korea was getting stronger after four-year structural adjustment. Their strong domestic demand had increased their consumption and made their GDP became higher and higher. Moreover, Korea tried to expand the economic effects of the 2002 FIFA World Cup in order to promote their economic development. Luckily, the World Cup was fully increased in production output and added value for 11.5 trillion won and 5.3 trillion won. Not only that, there were 350000 jobs and foreign tourists been created and attracted at that time. Apart of these direct economic effects, FIFA World Cup has facilitated the increase of export and promoted the development of information technology, sport industries and tourism as well.
Besides that, the outbreak of Asian financial crisis made Korea’s government realize the importance of SMEs. Therefore, Korea’s government had set up among 40000 venture companies in 2005. These companies have brought a lot of changes to their corporate culture. They were more emphasized on profit rate instead of blind expansion of income. Moreover, their business operations are more transparent than before. These changes on the companies have resulted in created 1.2 million jobs and
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