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- GDP (PPP):
- $1.6 trillion
- 3.6% growth
- 3.5% 5-year compound annual growth
- $31,714 per capita
- Inflation (CPI):
- FDI Inflow:
South Korea’s economic freedom score is 70.3, making its economy the 34th freest in the 2013 Index. Its score is 0.4 point higher than last year, with declines in labor freedom and monetary freedom offset by gains in the management of public spending and fiscal freedom. South Korea is ranked 8th out of 41 countries in the Asia–Pacific region.
Regaining the “mostly free” status that it last enjoyed in the 1998 Index, South Korea has improved its competitiveness by strengthening fiscal fundamentals. A vibrant private sector, bolstered by a well-educated labor force and high capacity for innovation, has capitalized on the country’s openness to global trade and investment. South Korea has proactively entered into free trade pacts with leading economies including the United States and the European Union.
A sound legal framework is in place to uphold the rule of law. However, corruption continues to undermine the foundations of economic freedom, eroding equity and trust in government. South Korea’s long-term economic dynamism will be shaped by the outcome of ongoing debates about the proper scope of government in the free market and welfare policies.
Opposition to South Korean President Lee Myung-bak, blamed for failing to deliver on campaign pledges of exuberant economic growth, has intensified in the past year. Fueled by legislative and presidential election campaigns ahead of the December 2012 vote, political discourse has revolved around the country’s widening income gap and a growing consensus in favor of “social welfarism.” Both the ruling conservative and opposition progressive parties have promised ever-growing government programs to gain voters’ favor, drowning out warnings of rising government debt. 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. After years of political debate and stalled legislation, the United States and South Korea have finally approved and implemented a free trade agreement.
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. Protection of intellectual property rights needs to be improved. Corruption remains a substantial concern. Since 1990, seven chairmen of the 10 largest chaebol (large business groups) have received jail sentences averaging 22 years, but all of the sentences were later suspended.
The top 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 25.1 percent of GDP. Government spending is equivalent to 30.1 percent of total domestic output. The budget balance has been in small surplus, and public debt remains below 35 percent of GDP.
The competitive regulatory framework facilitates entrepreneurial activity and innovation. With no minimum capital required, starting a business takes five procedures and seven days. The labor market continues to be dynamic, but there are lingering regulatory rigidities, with powerful trade unions adding to the cost of conducting business. Monetary stability has been maintained, and inflationary pressures have eased.
The trade-weighted average tariff rate is 8.7 percent but likely will decline in the future as new free trade agreements are implemented. The economy is increasingly open to foreign investors, and the investment regime has become more transparent. The financial sector has become more competitive, although business start-ups still struggle to obtain financing. The banking sector remains largely stable.