Emerging Markets: Analyzing South Korea's GDP

South Korea is one of the largest economies in Asia as well as one of the strongest in the world. It stands tall among many other competitors. Little wonder, then, its spectacular economic growth has been popularly called the "Miracle of the Han River".

As a trillion-dollar-club economy that ranks as the world’s 13th largest, with a gross domestic product (GDP) of $1.67 trillion in 2022 (latest World Bank information), South Korea has only one track that lies ahead of it: that of sound growth, particularly by being a global innovation leader.  

A Brief History of South Korea's Economy

Going back in time, South Korea, also known as the Republic of Korea, suffered huge losses during the Korean War that lasted from 1950 to 1953. By the time the war ended, the nation’s economy was in shambles, infrastructure was destroyed, and there was heavy dependence on U.S. aid.

However, the country’s transformation from poverty to affluence has been phenomenal. South Korea became part of the Organization for Economic Cooperation and Development (OECD) in 1996. There has been no looking back since then, and it is a fast-growing, highly industrialized nation that can serve as a role model for all developing nations.

An important contributor to this growth process is the culture of innovation that prevails in South Korea, an atmosphere that is friendly for investors and extremely cordial with most of the countries in the Asian market.

GDP Composition

South Korea is categorized as a "high-income OECD" nation by the World Bank and is largely supported by its industrial and service sectors, while only a small amount comes from its agricultural sector. Below is a bar graph of South Korea's GDP over time.

Agriculture

In the initial years after the division of the Korean peninsula, agriculture contributed almost 50% of the nation’s GDP up until the 1960s, but South Korea has been fast in shifting its base to the industrial sector. The agriculture sector's contribution to GDP dropped to 15% by the 1980s, sliding down below 10% by the late 1980s, and has stayed sub-5% since 1998. As of 2022, it is 1.64%.

The agricultural sector, including forestry, hunting, and fishing, as well as cultivation of crops and livestock production, employs a mere 5.35% of the population in 2021.

South Korea’s rugged topography leaves little scope for agricultural cultivation, as only 13.8% of the total land is arable as of 2021. Therefore, the country has to rely heavily on the import of agricultural products and raw materials for processing.

With increasing urbanization and rising labor costs, people have moved away from the agricultural sector. The small production sector that remains is substantially dependent on government subsidies and protectionist trade policies.

South Korea imports beef, corn, pork, dairy products, wheat, fresh fruit, vegetable oils, processed vegetables, and more. Below is a graph of South Korea's GDP from the agricultural sector.

The major suppliers to South Korea for its food requirements are the U.S., China, Australia, Vietnam, and Brazil.

Industry

The industrial sector has been a consistent contributor to the nation's GDP over the years, absorbing approximately one-fourth of its labor force as of 2021. Within the industry, which is composed of manufacturing, mining, construction, electricity, and water and gas as its subsectors, manufacturing has been the engine of economic progress, especially during the 1980s.

Of the 34% share of industry in South Korea’s GDP, 23% was contributed by manufacturing alone in 1980. The share increased to 25% of the 39% contribution of the industrial sector in 1991 and in 2014, while manufacturing contributed 30% of the 38% industrial sector share to the gross domestic product. Manufacturing accounts for 25.63% of GDP in 2022.

Mining has shown a decrease in its contribution to GDP as noted in the graph below.

South Korea produces anthracite, coal, iron ore, graphite, gold, tungsten, silver, lead, and zinc; however, domestic resources have not been able to cater to the demand of the industrial sector. Thus, South Korea needs to import mineral commodities to fill the gap. 

South Korea’s largest industries are textiles, steel, car manufacturing, shipbuilding, and electronics. The country is among the largest manufacturers of electronic goods as well as semiconductors, with globally popular brands such as Samsung and SK Hynix.

The country’s automotive industry is highly developed and has a huge capacity for automobile production. Some of the well-known Korean brands are Hyundai, Renault Samsung, and Kia. South Korea’s government support has made the country one of the most active markets for telecommunications and information technology.

It is a booming mobile market and has one of the highest numbers of broadband services per capita in the world. South Korea is a world leader in shipbuilding with some of the largest shipping companies in the world being based in South Korea.

Services

The services sector has gradually risen in terms of its contribution to the country’s GDP; from about 39% of the nation’s GDP back in 1965 to 50% by 1980 to 58% in 2022.

The sector employs over 70% of the Korean workforce as of 2021. South Korea lags behind other countries in terms of the share of GDP supported by the service sector according to its share of employment, such as Japan (73%), the U.S. (79%), and the U.K. (81%).

Below is South Korea's service sector GDP.

The service sector should play a major role in the years to come as investment increases in areas like medical care, tourism, and education, which would, in turn, become employment generators for the nation’s youth.

The Bottom Line

South Korea has moved at a fast pace since the bifurcation of the Korean peninsula. The adoption of capitalist ways has worked well for the nation, which is characterized by low unemployment, low to moderate inflation, an export surplus, and a fairly equitable distribution of income.

However, many challenges remain in the form of an aging population, a rigid labor market, heavy dependence on imports, and a limited domestic market.