2021 Index of Economic Freedom

South Korea

OVERALL SCORE74.0
WORLD RANK24
Rule of Law

Property Rights80.7

Judicial Effectiveness63.4

Government Integrity68.9

Government Size

Tax Burden63.0

Government Spending86.9

Fiscal Health96.7

Regulatory Efficiency

Business Freedom89.5

Labor Freedom55.8

Monetary Freedom84.4

Open Markets

Trade Freedom79.0

Investment Freedom60.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 51.7 million
  • GDP (PPP):
    • $2.3 trillion
    • 2.0% growth
    • 2.7% 5-year compound annual growth
    • $43,029 per capita
  • Unemployment:
    • 4.2%
  • Inflation (CPI):
    • 0.4%
  • FDI Inflow:
    • $10.6 billion

South Korea’s economic freedom score is 74.0, making its economy the 24th freest in the 2021 Index. Its overall score is unchanged, with an improvement in the government spending score offset by declines in investment freedom and financial freedom. South Korea is ranked 7th among 40 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

South Korea’s economy continues to maintain its ranking among the mostly free countries. A well-educated labor force and high capacity for innovation have helped companies to capitalize on the country’s participation in the global trading system. A sound legal framework is in place, but lingering corruption continues to undermine equity and trust in government. Improvements in judicial effectiveness and government integrity would increase economic freedom and spur growth.

IMPACT OF COVID-19: As of December 1, 2020, 526 deaths had been attributed to the pandemic in South Korea, and the economy was forecast to contract by 1.9 percent for the year.

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Background

Since his election in 2017, progressive President Moon Jae-in has sought to reduce tensions and improve relations with North Korea by offering economic benefits that include massive infrastructure projects. All economic activity with Pyongyang, however, is constrained by international sanctions, and North Korea subsequently dismissed Seoul’s diplomatic endeavors, even rejecting humanitarian assistance. After decades of rapid economic growth and global integration, South Korea has become a high-technology, industrialized, $2 trillion economy led by such sectors as electronics, telecommunications, automobile production, chemicals, shipbuilding, and steel. Nevertheless, the country 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 and expansionary fiscal policy.

Rule of LawView Methodology

Property Rights 80.7 Create a Graph using this measurement

Judicial Effectiveness 63.4 Create a Graph using this measurement

Government Integrity 68.9 Create a Graph using this measurement

Property rights and interests are enforced, and the courts manage a reliable system for the registration of mortgages and liens. The judiciary is generally considered to be independent, and efforts are being made to ensure that the judicial process is fairer and more reliable. Despite government anticorruption efforts, bribery, influence peddling, nepotism, and extortion persist in politics, business, and everyday life.

Government SizeView Methodology

The top personal income tax rate is 42 percent, and the top corporate tax rate is 25 percent. Both rates are subject to a 10 percent surtax. The overall tax burden equals 28.4 percent of total domestic income. Government spending has amounted to 20.9 percent of total output (GDP) over the past three years, and budget surpluses have averaged 1.9 percent of GDP. Public debt is equivalent to 40.7 percent of GDP.

Regulatory EfficiencyView Methodology

Business freedom is well established in South Korea. However, the number of procedures and days it takes to start a business has risen. The Moon administration has initialized a mandatory 52-hour workweek, adding rigidity to an already inflexible labor market. In its 2020 budget, the government maintained a variety of green subsidies including subsidies for electric vehicles.

Open MarketsView Methodology

South Korea has 18 preferential trade agreements in force. The trade-weighted average tariff rate is 8.0 percent, and 435 nontariff measures are in effect. Foreign investment in some sectors remains restricted, and policy reforms are needed to facilitate greater investment inflows. The financial sector is competitive, but business start-ups still struggle to obtain financing. Interventionist policies have increased, undermining the potential for growth.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.70.3
2New Zealand83.9-0.2
3Australia82.4-0.2
4Taiwan78.61.5
5Malaysia74.4-0.3
6Japan74.10.8
7South Korea740.0
8Kazakhstan71.11.5
9Thailand69.70.3
10Indonesia66.9-0.3
11Brunei Darussalam66.60.0
12Philippines64.1-0.4
13Kyrgyz Republic63.70.8
14Mongolia62.46.5
15Fiji62.2-1.2
16Samoa61.9-0.2
17Vietnam61.72.9
18Vanuatu60.5-0.2
19Papua New Guinea58.90.5
20China58.4-1.1
21Uzbekistan58.31.1
22Bhutan58.3-3.8
23Tonga57.5-1.3
24Cambodia57.30.0
25Bangladesh 56.50.1
26India56.50.0
27Solomon Islands56.53.6
28Sri Lanka55.7-1.7
29Tajikistan55.23.0
30Burma55.21.2
31Maldives55.2-1.3
32Laos53.9-1.6
33Afghanistan53-1.7
34Pakistan51.7-3.1
35Nepal50.7-3.5
36Micronesia50.4-1.6
37Turkmenistan47.40.9
38Timor-Leste44.7-1.2
39Kiribati44.4-0.8
40North Korea5.21.0
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