Economic Survey of Korea 2005: Key challenges facing Korea

The following OECD assessment and recommendations summarise Chapter 1 of the Economic Survey of Korea 2005 published on 5 October 2005.

While Korea stands out as one of the fastest-growing economies in the OECD area …

Korea has achieved an annual growth rate of 5½ per cent during the past five years, thanks in part to progress in restructuring its economy and strong external demand, particularly from China. The wide-ranging reform programme adopted following the 1997 crisis and the further opening to international competition is transforming the economy. Nearly half of the major business groups have disappeared, while foreign ownership of listed companies has increased from 15% to 42%. Rising foreign direct investment includes an important foreign presence in the banking sector. With rapid growth, the convergence process has continued, lifting Korea’s per capita income to two-thirds of the OECD average.

Korea's per capita income is converging to the OECD average
 

1. Heavy and chemical industry.
Source: OECD and Bank of Korea.

… sustaining rapid growth over the longer-term requires meeting a number of challenges

However, the stagnation of domestic demand since the end of 2002 and slowing inputs of capital and labour have raised concerns about Korea’s growth prospects. Sustaining the potential growth rate near its current level of 4½ to 5% requires meeting a number of challenges.

• Maintaining macroeconomic stability and sound public finances in the face of spending pressures stemming from exceptionally rapid population ageing, the development of a social safety net and the potential cost of future economic integration with North Korea.

• Effectively implementing the fiscal decentralisation programme to enhance efficiency in the context of the government’s objective of promoting balanced regional development.

• Upgrading the innovation system to promote faster productivity gains by improving the R&D framework, strengthening product market competition and restructuring tertiary education.

• Enhancing labour market flexibility to cope with rapid structural change and reversing the trend toward increasing dualism, while promoting greater labour force participation.

• Resolving persistent remaining weaknesses in the corporate and financial sectors.
  In sum, it is essential to complete the transformation of the economic framework that was launched in the wake of the 1997 crisis, while addressing emerging challenges, in order to sustain high growth.

Population ageing will be exceptionally rapid in Korea
Ratio of the population aged 65 and over the population aged 20-64

Source: OECD, Ageing and employment policies: Korea (2004)

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Return to the Economic Survey of Korea 2005

A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

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For further information please contact the Korea Desk at the OECD Economics Department at webmaster@oecd.org.  The OECD Secretariat's report was prepared by Randall Jones, Yokoyama Tadashi and Yongchun Baek under the supervision of Wilhelm Leibfritz.

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