Academic journal article Asian Perspective

Geopolitics and South Korea's Economic Success

Academic journal article Asian Perspective

Geopolitics and South Korea's Economic Success

Article excerpt

South Korea is arguably the world's greatest economic success (Williamson and Haggard 1994). As recently as 1960, per capita incomes were just as low as those prevailing in Africa, but from such humble origins the South Korean economy expanded rapidly and steadily, joining the Organization for Economic Cooperation and Development (OECD) in 1996 and now ranking as the eleventh largest economy in the world.1 Economic success of this magnitude garners immense curiosity and a vast literature, with ongoing discussion as to how and why South Korea succeeded so brilliantly.

This article deepens our understanding of the South Korean economic miracle in three ways. First, using the most recent economic data, I demonstrate that the South Korean economy continues to impress when evaluated in comparative perspective. Second, I argue that geopolitics, such as the country's unique relationships with the United States, China, and Japan, have played a defining role in facilitating South Korean success. Third, contemporary geopolitics and economic aspirations intersect in South Korea's recent free trade agreements (FTAs) with the United States and China.

Economic Performance

Measures of Overall Success

Figure 1 illustrates South Korea's remarkable economic success from 1960 to 2014. Sub-Saharan Africa provides an interesting first comparison because, as illustrated in the figure, South Korean incomes in 1960 were relatively close to those prevailing in Africa at the time. From this baseline, however, South Korea rapidly developed, such that current per capita gross domestic product (GDP) is about ten times the level prevailing in Africa.

Another way of viewing South Korean success is to look at world income averages. Figure 1 shows that South Korean incomes were substantially below world averages in 1960 but went on to surpass the averages as early as 1982. Moreover, current incomes are three times higher than world averages. This represents a dramatic surge in the world economic hierarchy. Finally, the most challenging comparison one could make is with the OECD, whose members are the world's wealthiest countries. Figure 1 demonstrates that South Korea, although not yet quite at the level of the overall OECD average, is nonetheless well over 80 percent of this average and rapidly approaching the median. It is therefore misleading to think of South Korea as a successful developing nation. In economic terms, South Korea is already a developed country.

Figure 1 shows nominal GDP, meaning GDP measured using market exchange rates. This data series is substantially longer, allowing for a better appreciation of the prolonged nature of South Korean success. Moreover, the tradable sector (which drives exchange rate-measured GDP) is probably the most relevant sector for foreigners interested in South Korea's economy. Nonetheless, Figure 2 utilizes the alternative measure of purchasing power parity (PPP) data, which is widely viewed as a better measure of well-being than nominal GDP measured by exchange rates because PPP compares the real purchasing power of citizens in each country. In practice, the main effect is that poor countries look comparably better in PPP data, with the underlying intuition being that incomes in poor countries are low in exchange-rate terms but nonetheless allow citizens to purchase local services more cheaply than tradable goods.

Figure 2 illustrates this general effect. African incomes look somewhat closer to OECD incomes in Figure 2 compared to Figure 1. The same effect occurs for South Korea, in which Figure 2 shows South Korea as even closer to converging with OECD incomes when compared with PPP figures. Moreover, Figure 2 shows South Korea having closed more than half the remaining gap with the OECD since the 2008 financial crisis, suggesting that PPP-based GDP has continued to rise quickly compared to OECD peers. This is a rather remarkable accomplishment and warrants the accolades of "success" in recent years, despite the much lower rate of South Korea's recent economic growth. …

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