South Korea's International Economic Relations

Abstract

PRIOR TO THE HIGH-GROwTH period of the last two decades, South Korea's economy was characterized by these common features of underdevelopment: per capital GNP less than $100; a low rate of domestic savings and a very high degree of dependence on foreign aid; a stagnant GNP and a very high inflation rate. During this time there were also some potentially positive elements in the economy: availability of surplus labor for developing industries, and socioeconomic conditions and an endogeneous technological base that were rather conducive to the development of modern industries. What happened to the Korean economy during the last two decades is well known today. The average annual growth rate during 1962-1978 was 9.4%, exports increased by 40.2% per year, and industrial production by about 20% per year. South Korea was indeed a successful case of achieving high growth by adopting an outward-looking development strategy. Trade and international economic cooperation were the most significant vehicles for development in Korea. It is also well known that the Korean economy today is going through a very difficult period. Economic conditions during 1979 were characterized by high inflation, a sharp deterioration in the current account balance, and stagnation of economic growth with high unemployment. The main purpose of this article is to examine South Korea's recent economic difficulties and future prospects from a long-term perspective. What we are primarily interested in is whether or not a development strategy of the outward-looking type can cope with the new challenges arising mainly from the new international economic environment. We begin with a brief review of South Korea's growth pat.