2019 Index of Economic Freedom

South Korea

overall score72.3
world rank29
Rule of Law

Property Rights79.3

Government Integrity50.5

Judicial Effectiveness57.5

Government Size

Government Spending68.6

Tax Burden64.2

Fiscal Health96.8

Regulatory Efficiency

Business Freedom91.3

Labor Freedom57.4

Monetary Freedom82.0

Open Markets

Trade Freedom80.4

Investment Freedom70.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 51.5 million
  • GDP (PPP):
    • $2.0 trillion
    • 3.1% growth
    • 3.0% 5-year compound annual growth
    • $39,434 per capita
  • Unemployment:
    • 3.7%
  • Inflation (CPI):
    • 1.9%
  • FDI Inflow:
    • $17.1 billion

South Korea’s economic freedom score is 72.3, making its economy the 29th freest in the 2019 Index. Its overall score has decreased by 1.5 points because of sharply lower scores for judicial effectiveness and the tax burden and declines in monetary freedom and labor freedom. South Korea is ranked 7th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

Touting “income-led growth” to create a “people-centered economy,” the government has increased its intervention in the economy with measures to alleviate household debt pressures, increase corporate taxes and marginal income tax rates, and raise the minimum wage. No new high-profile corruption scandals have emerged since the former president’s impeachment, but public trust and confidence in the government have not been strengthened. The rule of law is fairly well institutionalized, supporting such other pillars of economic freedom as regulatory efficiency and market openness.

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Background

In May 2017, liberal candidate Moon Jae-in became president following the impeachment of Park Geun-hye. Moon promised a resumption of economic benefits to North Korea to reduce tensions on the peninsula and quickly embraced a diplomatic outreach by Kim Jong-un in 2018. Although Moon hopes to use economic largesse to induce more moderate behavior by Pyongyang, such efforts are constrained by U.N. and U.S. sanctions. After decades of rapid economic growth and global integration, South Korea has become a high-technology, industrialized, trillion-dollar economy, but President Moon faces daunting challenges that include an aging population, low worker productivity, and the need to implement a structural shift away from overreliance on an export-led growth model.

Rule of LawView Methodology

Property Rights 79.3 Create a Graph using this measurement

Government Integrity 50.5 Create a Graph using this measurement

Judicial Effectiveness 57.5 Create a Graph using this measurement

Private property rights are protected, and the judicial system is independent and efficient, but the judiciary is not completely free from political pressure despite the government’s anticorruption efforts. Laws and regulations are often framed in vague terms and are subject to differing interpretations by rotating government officials. Nepotism, especially when securing contracts and tax favors, is still frequently encountered.

Government SizeView Methodology

The top personal income tax rate has been raised to 42 percent, and the top corporate tax rate has been raised to 25 percent. Both rates are subject to a 10 percent surtax. The overall tax burden equals 26.3 percent of total domestic income. Over the past three years, government spending has amounted to 32.4 percent of the country’s output (GDP), and budget surpluses have averaged 1.4 percent of GDP. Public debt is equivalent to 39.8 percent of GDP.

Regulatory EfficiencyView Methodology

The competitive regulatory framework generally facilitates entrepreneurial activity. Business formation and operating rules are relatively efficient. There are lingering regulatory rigidities, and powerful trade unions add to the cost of doing business. The minimum wage has been significantly increased. Monetary stability has been well maintained, and the government reduced electric vehicles subsidies in 2018, although it also introduced shipbuilding subsidies.

Open MarketsView Methodology

The combined value of exports and imports is equal to 80.8 percent of GDP. The average applied tariff rate is 4.8 percent. As of June 30, 2018, according to the WTO, South Korea had 394 nontariff measures in force. Foreign investment in some sectors remains restricted, and decisive policy reforms to facilitate greater investment flows have been absent. The financial sector is competitive, but business start-ups still struggle to obtain financing.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.0
2Singapore89.40.6
3New Zealand84.40.2
4Australia80.90.0
5Taiwan77.30.7
6Malaysia 74-0.5
7South Korea72.3-1.5
8Japan72.1-0.2
9Macau710.1
10Thailand 68.31.2
11Indonesia65.81.6
12Kazakhstan65.4-3.7
13Azerbaijan65.41.1
14Brunei Darussalam65.10.9
15Philippines63.8-1.2
16Bhutan62.91.1
17Kyrgyz Republic 62.3-0.5
18Fiji62.20.2
19Samoa62.20.7
20China58.40.6
21Papua New Guinea58.42.7
22Cambodia57.8-0.9
23Tonga57.7-5.4
24Laos57.43.8
25Sri Lanka56.4-1.4
26Vanuatu56.4-13.1
27Bangladesh 55.60.5
28Tajikistan55.6-2.7
29Mongolia55.4-0.3
30Vietnam55.32.2
31India55.20.7
32Pakistan 550.6
33Solomon Islands54.6-2.9
34Nepal53.8-0.3
35Burma53.6-0.3
36Uzbekistan53.31.8
37Maldives53.22.1
38Micronesia51.9-0.4
39Afghanistan51.50.2
40Turkmenistan48.41.3
41Kiribati47.3-3.5
42Timor-Leste44.2-3.9
43North Korea5.90.1
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