2014 Index of Economic Freedom

South Korea

overall score71.2
world rank31
Rule of Law

Property Rights70.0

Freedom From Corruption54.0

Limited Government

Government Spending72.6

Fiscal Freedom72.6

Regulatory Efficiency

Business Freedom92.8

Labor Freedom47.8

Monetary Freedom79.6

Open Markets

Trade Freedom72.6

Investment Freedom70.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 50.0 million
  • GDP (PPP):
    • $1.6 trillion
    • 2.0% growth
    • 2.9% 5-year compound annual growth
    • $32,272 per capita
  • Unemployment:
    • 3.3%
  • Inflation (CPI):
    • 2.2%
  • FDI Inflow:
    • $9.9 billion
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South Korea’s economic freedom score is 71.2, making its economy the 31st freest in the 2014 Index. Its score is 0.9 point higher than last year, with improvements in financial freedom and monetary freedom outweighing modest declines in business freedom, labor freedom, and fiscal freedom. South Korea is ranked 8th out of 42 countries in the Asia–Pacific region.

Over the 20-year history of the Index, South Korea’s economic freedom has been largely stagnant. Notable gains in market openness, which measures trade freedom, investment freedom, and financial freedom, have been undercut by declines in property rights, freedom from corruption, and the management of public spending. South Korea’s economy, rated “moderately free” through most of the history of the Index, has advanced to “mostly free” in the past two years.

A dynamic private sector, reinforced by a well-educated labor force and high capacity for innovation, has capitalized on openness to global trade and investment. A sound legal framework is in place, although corruption continues to undermine equity and trust in government. South Korea’s long-term economic dynamism hinges on the outcome of ongoing debates about the proper scope of government in the free market and welfare policies.

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Background

Conservative President Park Geun-hye assumed office in February 2013 vowing a new approach to North Korea. Her “trustpolitik” strategy balances enhancing South Korean defense capabilities to deter North Korean attacks with a willingness to engage Pyongyang in conditional, reciprocal diplomacy. North Korea has shown no sign of accepting Park’s outreach without massive unconditional benefits. Her election, however, turned more on economic issues. Park pledged a mixture of business-friendly economic policies to jump-start the economy and increased government “social welfarism” to redress economic disparities. South Korea, the world’s 15th-largest economy, has enjoyed decades of impressive economic growth and is a world leader in electronics, telecommunications, automobile production, and shipbuilding.

Rule of LawView Methodology

Property Rights 70.0 Create a Graph using this measurement

Freedom From Corruption 54.0 Create a Graph using this measurement

Despite the political system’s overall health, bribery, influence peddling, and extortion remain present in politics, business, and everyday life. In 2012, the speaker of South Korea’s National Assembly resigned after allegations surfaced that he had obtained his post through bribery. A well-functioning modern legal framework ensures strong protection of private property rights. The rule of law is effective, and the judicial system is efficient.

Limited GovernmentView Methodology

The top individual income tax rate is 35 percent, and the top corporate tax rate is 22 percent. A 10 percent surtax on individual and corporate rates and a value-added tax (VAT) bring the overall tax burden to 25.9 percent of GDP. Government spending is equivalent to 30.2 percent of total domestic output. The budget balance has been in small surplus, and public debt remains below 35 percent of GDP.

Regulatory EfficiencyView Methodology

The competitive regulatory framework facilitates business formation and innovation. Launching a company takes five procedures, and no minimum capital is required. Bankruptcy proceedings are relatively easy. The labor market remains dynamic, but there are lingering regulatory rigidities, and powerful trade unions add to the cost of conducting business. Monetary stability has been maintained, and inflationary pressures have eased.

Open MarketsView Methodology

South Korea’s average tariff rate is 8.7 percent. The country has completed several free trade agreements and is pursuing agreements with Australia, China, and Canada. Foreign ownership in some sectors of the economy is capped at different levels. The financial sector is sophisticated and well developed, with its assets valued at about nine times GDP. Financial institutions have gained more autonomy from the state, ensuring greater market competition.

Country's Score Over Time

Bar Graph of South Korea Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing South Korea to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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