2017 Index of Economic Freedom

South Korea

overall score74.3
world rank23
Rule of Law

Property Rights77.8

Government Integrity67.3

Judicial Effectiveness59.9

Government Size

Government Spending68.9

Tax Burden73.7

Fiscal Health97.4

Regulatory Efficiency

Business Freedom90.6

Labor Freedom57.0

Monetary Freedom84.0

Open Markets

Trade Freedom79.5

Investment Freedom65.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 50.6 million
  • GDP (PPP):
    • $1.8 trillion
    • 2.6% growth
    • 3.0% 5-year compound annual growth
    • $36,511 per capita
  • Unemployment:
    • 3.7%
  • Inflation (CPI):
    • 0.7%
  • FDI Inflow:
    • $5.0 billion
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South Korea’s economy is at a crossroads. Despite its relatively well-maintained macroeconomic stability and openness to global commerce, the economy has been flagging, with momentum for growth increasingly subdued in the absence of decisive policy reforms to improve overall efficiency and flexibility. Ongoing political instability and uncertainty have made structural economic reform almost impossible.

The rule of law has been fairly well institutionalized in South Korea, supporting such other pillars of economic freedom as regulatory efficiency and market openness. However, repeated high-profile corruption scandals have raised concerns about government integrity and eroded the public’s trust and confidence in government.

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Background

The South Korean political landscape is in flux following the impeachment of President Park Geun-hye. Though Park remains in office, she was required to transfer her presidential powers to Prime Minister Hwang Kyo-ahn pending final resolution by the Constitutional Court. Park’s corruption scandal led to a fracturing of the ruling conservative party and increased the likelihood that a progressive candidate might win the presidential election. Progressive candidates advocate greater focus on resolving domestic economic disparity and reforming the economy away from reliance on the chaebol (large family-owned conglomerates). Progressives would also push for reduced reliance on the alliance with the U.S., reopening economic ventures with North Korea, and more timid implementation of sanctions for Pyongyang’s repeated violations of U.N. resolutions.

Rule of LawView Methodology

Property Rights 77.8 Create a Graph using this measurement

Government Integrity 67.3 Create a Graph using this measurement

Judicial Effectiveness 59.9 Create a Graph using this measurement

Private property rights are protected, and the judicial system is independent and efficient. Nevertheless, encounters with graft, influence peddling, and extortion continue to occur despite the government’s anticorruption efforts. Piracy of copyrighted material is significant, and protection of intellectual property rights needs to be improved. The importance that the government places on IPR protection, however, has increased considerably.

Government SizeView Methodology

The top personal income tax rate is 35 percent, and the top corporate tax rate is 22 percent. A 10 percent surtax is imposed on individual and corporate rates. The overall tax burden equals 24.6 percent of total domestic income. Government spending has amounted to 32.2 percent of total output (GDP) over the past three years, and budget surpluses have averaged 0.3 percent of GDP. Public debt is equivalent to 35.9 percent of GDP.

Regulatory EfficiencyView Methodology

The competitive regulatory framework facilitates entrepreneurial activity and innovation. Business formation and operating rules are relatively efficient. The labor market is dynamic, but there are lingering regulatory rigidities, and powerful trade unions add to the cost of doing business. Monetary stability has been well maintained. The government subsidizes rice farmers and sets price controls on items that include fuel, rice, and electricity.

Open MarketsView Methodology

Trade is important to South Korea’s economy; the value of exports and imports taken together equals 85 percent of GDP. The average applied tariff rate is 5.2 percent. Foreign investment in some sectors is restricted, and state-owned enterprises distort the economy. The financial sector has become more competitive, although business start-ups still struggle to obtain financing. The banking sector remains largely stable.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
2Singapore88.60.8
3New Zealand83.72.1
4Australia810.7
5Taiwan76.51.8
6South Korea74.32.6
7Malaysia 73.82.3
8Macau70.70.6
9Brunei Darussalam69.82.5
10Japan69.6-3.5
11Kazakhstan695.4
12Vanuatu67.46.6
13Thailand 66.22.3
14Philippines65.62.5
15Azerbaijan63.63.4
16Fiji63.44.6
17Tonga633.4
18Indonesia61.92.5
19Kyrgyz Republic 61.11.5
20Cambodia59.51.6
21Bhutan58.4-1.1
22Samoa58.4-5.1
23Tajikistan58.26.9
24China57.45.4
25Sri Lanka57.4-2.5
26Nepal55.14.2
27Solomon Islands558.0
28Bangladesh 551.7
29Mongolia54.8-4.6
30Micronesia54.12.3
31Laos544.2
32Pakistan 52.8-3.1
33India52.6-3.6
34Burma52.53.8
35Vietnam52.4-1.6
36Uzbekistan52.36.3
37Papua New Guinea50.9-2.3
38Kiribati50.94.7
39Maldives50.3-3.6
40Afghanistan48.9N/A
41Turkmenistan47.45.5
42Timor-Leste46.30.5
43North Korea4.92.6
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