Korea stands out as one of the fastest-growing OECD countries over the past five years, with an annual growth rate of around 6 per cent. This very good performance has sustained the convergence process, lifting per capita income to two-thirds of the OECD average. The return to high growth rates following the 1997 crisis was based in part on Korea’s progress in reforming its economic framework to correct some of the weaknesses that had made it vulnerable to the Asian crisis. Rapid growth also reflects the country’s underlying economic dynamism, particularly in the information and communications technology (ICT) sector. Korea has also benefited from ...

In July 2003, the government announced a medium to long-term target of doubling per capita income from around $10 000 to $20 000.1 Thirty years of extraordinary growth had boosted per capita income from about $100 in 1965 to the $10 000 level by the mid-1990s (Figure 1.1). However, weaknesses in Korea’s economic structure, which lacked many of the basic elements of a market economy, left the country vulnerable to the financial crisis that swept through Asia in 1997, reducing per capita income by a third in US dollar terms, primarily due to the sharp fall in the exchange rate. In particular, close government-business links had created moral hazard problems, resulting in excessive risk-taking and insufficient attention to credit and exchange-rate risks. The government responded ...

Korea is rebounding gradually from the downturn in the first half of 2003. Output growth at an 11 per cent seasonally-adjusted annual rate in the fourth quarter of 2003 suggests a strong recovery. However, the large gap between buoyant exports and still sluggish domestic demand, with private consumption still declining, indicates that a full-fledged recovery is not yet underway. On the other hand, there is not much slack in the labour market, where unemployment is at a low level and wage growth has been high. These conflicting signals make it exceptionally difficult to project the path of the recovery and the appropriate macroeconomic policies. This chapter begins by providing short-term projections ...

The labour market has moved near the top of the policy agenda in Korea. Although there have been profound changes following the democratisation of the country in 1987 and the financial crisis in 1997, it is clear that the current labour market framework is not appropriate, given the large and growing role of hightechnology industries and Korea’s increasing integration with the world economy. The government’s most immediate concern is sluggish job creation and the relatively high unemployment rate for young adults. The reluctance of firms to hire is linked to a lack of labour market flexibility, resulting from strict employment protection for regular workers. The strong opposition of workers ...

The corporate and financial sectors, which lay at the core of the 1997 crisis, have evolved significantly in recent years. The corporate sector is still in the process of restructuring in the wake of several important changes, including stronger competitive pressures, a new corporate governance framework and more independent financial institutions. Of the top 30 chaebol in 1997, seventeen have entered legal bankruptcy procedures or been forced into workout programmes, including Daewoo, which was the second largest group. A number of others lost major subsidiaries. The surviving chaebol have substantially reduced debt; the average debt-toequity ratio has fallen to 116 per cent from more than 500 per cent at the time of the crisis. The improved financial health of the corporate sector has had beneficial ...

The OECD Growth Study and other empirical work demonstrate that competition in product markets plays a significant role in the process of economic growth. Korea has succeeded in transforming itself from one of the poorest countries in the world in the 1960s to an important industrial nation over the period of one generation (Figure 1.1). This has been accomplished despite government measures over the past forty years to accelerate growth, focusing on export-oriented manufacturing industries in which scale economies are important, which tended to weaken competition to some extent. The outstanding economic performance suggests that there may have been some positive results from these policies, perhaps because they enabled Korea to ...