1. Korea Development Institute
The Korean Economy and
Future Opportunities
for New Zealand
June, 2006
Jung Taik HYUN
President
Korea Development Institute

2. Contents 1. Transformation of the Korean Economy (1945-2005)
2. The Current Status of the Korean Economy
3. Challenges Ahead
4. Korea’s Efforts for Globalization
5. Korea and New Zealand – Economic Opportunities

3. 1. Transformation of the Korean Economy (1945-2005)

4. Per Capita Income (US$)
1.1 Overview - Per Capita Income
Per Capita Income (US$)
16,291
14,193
11,432
10,000
Six 5-Year-Economic-
Development Plans
7,355
Financial
Crisis
5,000
Liberation
from Japanese
Colonial Rule
1,000(1977)
OECD
Member
100(1964) 89 67
1945
1953
1961
1970
1980
1990
1995
1998
2004
2005

5. 1.1 Overview - GDP Structure & Employment Structure
Agriculture, fisheries,
and mining 4%
Agriculture, fisheries,
and mining
45%
Services
40%
Manufacturing
28%
1963
2005
Services
68%
Manufacturing
15%
< Employment Structure >
Agriculture, fisheries,
and mining 6%
Services
29%
Agriculture, fisheries,
and mining
63%
Manufacturing 8%
Manufacturing
19%
1963
2005
Services
75%

6. < Economic Conditions of the Early 1960s >
1.2 Economic Take-Off with Outward-looking Development Strategy (1/5)
< Economic Conditions of the Early 1960s >
Capital
Shortage
Abundant
Labor
High Level of
Education
Weak
Technology Base ?
Strong
Economic will
Underdeveloped
Private Sector

7. 1.2 Economic Take-Off with Outward-looking Development Strategy (2/5)
< Working Mechanism of Outward-looking Development Strategy >
Foreign Capital Inducement
(Economic Aids External Debt)
Economic Growth
Reproduction
Export
Promotion
Manufacturing
Processing
Private
Enterprises
Capital Good Imports
Raw Material Imports
Technology
Development
Financial  Tax Support
Well-educated Labor force
Foreign Technology
Imports
Government

8. < Growth in Imports and Exports >
1.2 Economic Take-Off with Outward-looking Development Strategy (3/5)
< Growth in Imports and Exports > 20 40 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04
(% of GDP)
Imports
Exports
Trade balance

9.  Petro-Chemical Products Selecting National Champions(“Chaebol”)
1.2 Economic Take-Off with Outward-looking Development Strategy (4/5)
 Iron and Steel
 Electronics
 Petro-Chemical Products
 Automobile
 Ship-building
 Machinery
Policy Change Toward
HCI Development
Mobilizing Financial Resources
Selecting National Champions(“Chaebol”)

10. 1.2 Economic Take-Off with Outward-looking Development Strategy (5/5)
< Changes in Export Commodity Profile:
From Light Industry to Heavy Industry >
Semiconductor, Mobile Phone, DTV, Display, Automobile, Ship-building, etc.
Export
Commodity
Profile
Wig
Textile
Automobile
Semiconductor
79.8%
HCI Product
50%
Light Industry
Product
14.1%
Agricultural
Product
6.1%
1980
1960
1970
1990
1999
2003

11. < Pitfalls of the Government-led Economic Development >
1.3 Changes in the Development Strategy ( )
< Pitfalls of the Government-led Economic Development >
Financial repression
due to prolonged
government intervention
Over-investment in
HCIs
High inflation and
large fiscal deficits
Inefficient resource allocation
Macroeconomic instability
Rising inequality
Negative economic growth (-3.9%) and political crisis in 1980
Change in policy stance:
“Liberalization and Stabilization”

12. 1.4 Delayed Economic Reforms and the Financial Crisis (1/2)
< The Crisis of 1997 >
Increased
vulnerability to
external shocks
IMF
rescue package
Massive capital outflow
Denied rollover of short-term external debt
Continued
government intervention/
Weak
prudential regulation
Large NPLs
in the financial
sector
South-east Asian
crisis
High
corporate
debt leverage
Widespread
moral hazard

13. 1.4 Delayed Economic Reforms and the Financial Crisis (2/2)
Cleaning up
non-performing loans
Rapid
economic
recovery
- GDP growth: -6.7% (1998)
 10.7% (1999)
- Unemployment: 6.8% (1998)
 3.7% (2005)
Accelerating
liberalization
Improving
corporate governance
Improved
external
positions
- Early graduation from
the IMF program
- Foreign reserves of more than
USD 200bn in 2005
Expanding
social safety net
Stronger
corporate and
financial sector
- Debt-equity ratio: 396% (1997)
 182 (2002)
- No. of banks: 33 (1997)
 20 (2001)

14. 2. The Current Status of the Korean Economy

15. 2.1 The Current Status of the Korean Economy
 KDI 경제전망
2.1 The Current Status of the Korean Economy
I. 최근 경제동향 / 15
(y-o-y, %)
2005p
2006
Yearly
1/4p
2/4
3/4
4/4
GDP
4.0
6.1
5.8
5.1
4.4
5.3
Private Consumption
3.2
4.8
4.7
Facility Investment
6.9
9.9
10.4
7.0
8.4
Merchandise Exports
9.7
11.6
12.6
11.8
11.9
Note: P denotes Preliminary.
Source: KDI

16. 2.2 Risk Factors of the Korean Economy  세계경제 여건-리스크 요인
Possibility of further increase in petroleum price
Low production capacity of petroleum producing countries
Geo-political risks such as Iranian nuclear crisis
- WTI ($/bbl): (Dec. 2005) → (June 14, 2006) … 14.7%
- Dubai ($/bbl): (Dec. 2005) → (June 14, 2006) … 24.8%
Further decrease in exchange rate (Korean Won/US$)
Sustaining Current account imbalance of the US
Expansion of the Korean economy
- Won/Dollar: (Dec. 2005) → (June 13, 2006) … 6.1%

17. 3. Challenges Ahead

18. 3.1 Potential Growth Rate and Productivity (1/2)
Economic growth of Korea depended on resources such as capital and labor.
Korea has shown one of the highest saving ratio.
It is well endowed with highly educated and well trained labor.
< School Enrollment Rate > 20 40 60 80
100
1970
1980
1990
2000
2005
Kindergarten
Elementary
Middle
High
College
(%)
the number of enrollments in a specified age range
Note: Enrollment rate =
the whole population in the same age range

19. (before economic crisis) (after economic crisis)
 잠재성장률 추세변화와 요인
3.1 Potential Growth Rate and Productivity (2/2)
III. 한국의 잠재 경제성장률과 그 제고방안 / 19
Growth depending on factor accumulation ran its course, and productivity should lead further growth.
Education and training system toward the knowledge-based economy
Promoting public and private R&D activities
Creating an investment-friendly environment
Upgrading the institutional quality
< Potential Growth and Contributions >
(%)
6.9
6.1
1.8
1.8
Productivity
4.8
3.9
3.3
1.6
Capital
2.3
1.2
Labor
1.0
0.9
1991∼2000
1991∼1997
(before economic crisis)
2003∼2012
(after economic crisis)
Source: KDI

20. 3.2 Income Disparity < Gini-Coefficients (1992-2003) >
Income disparity increased, reflecting structural changes
in industries and labor markets.
Income gap widened among wage earners (66% of workforce) & among the
whole households including self-employed & unpaid workers (33% of workforce).
However, the disparity shows the sign of decline since early 2000s.
< Gini-Coefficients ( ) >
0.37
0.359
0.35
Total income, Entire Workforce
0.342
0.33
Total Income, Urban Employee
0.31
0.290
0.29
Payroll, Urban Employees
0.27
0.25
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004

21. 3.3 Industrial Restructuring and Challenges from China (1/5)
중고기술제품
중저기술제품
Positive correlation between RCA (or profitability) and the
share of value added by technological level.
Employment share in low tech continues to decrease, while
employment share remains unchanged in high tech despite
its increase in the share of value added.
< Korea : Share of Value Added
by Technological Level >
< Korea : Share of Employment
by Technological Level >
High tech
Low tech
Medium-high tech
Medium-low tech
Source: Korea National Statistical Office, Mining and Manufacturing Survey

22. 3.3 Industrial Restructuring and Challenges from China (2/5)
During , Korea gained a CA in high-tech products and improved medium-high tech, while CA declined in medium-low tech and Low tech products.
China showed similar phases of restructuring and became challenges to the Korean
economy.
0.5 1
1.5 2
2.5
1993
2004 US
China
Korea
Japan
Medium-low tech
Medium high tech
High tech
Low tech

23. 3.3 Industrial Restructuring and Challenges from China (3/5)2
China’s export structure is rapidly converging with
that of Korea.
Particularly, China achieved a large increase in the export of IT products.
< China >
< Korea > 0%
20%
40%
60%
80%
100%
1993
2004
Medium-high tech
High tech
Low tech
Medium-low tech
Non-manufacturing 0%
20%
40%
60%
80%
100%
1993
2004
Medium-high tech
High tech
Low tech
Medium-low tech
Non-manufacturing
Source: UNCOMTRADE

24. 3.3 Industrial Restructuring and Challenges from China (4/5)6
Korea maintained CA in some high-tech products such as radio,
TV and communication products.
Although China gained CA in some high-tech products, technology level
involved in the production process of these products differs greatly in China.
* Production of some products only needs simple labor-intensive process.
While Korea’s CA in semiconductors and elec.valves decreased, it is still higher than other major developed economies.
<Computers & Office products>
<Radio, TV & Comm Equip>
<Semiconductor &
Electronic Valves>
0.5 1
1.5 2
2.5 3
1993
2004
0.5 1
1.5 2
2.5 3
3.5
1993
2004 4
Korea
3.5
Japan 3
Korea
Japan
2.5 US
Japan 2 US
China
1.5
Korea 1 US
China
China
0.5
1993
2004

25. 3.3 Industrial Restructuring and Challenges from China (5/5)
Among major Medium-high tech products,Korea has achieved CA
in auto products since 2001.
Korea still has CDA in machines and equipment, however, CA index improved rapidly.
< Major Medium-High tech Products >
<Motor Vehicles & Trailers>
<Machines & Equipment>
0.5 1
1.5 2
2.5
1993
2004
China
Korea US
Japan
0.2
0.4
0.6
0.8 1
1.2
1.4
1.6
1.8
1993
2004
Japan US
Korea
China

26. < Share of the old (65+) >
3.4 Aging Society
The speed of population aging is far higher in Korea than other
major developed countries.
Reforming the public pension and health insurance program
Extending employment opportunities for female, elderly and disadvantaged groups
< Share of the old (65+) > 5 10 15 20 25 30 35 40 60 65 70 75 80 85 90 95 00 05 45 50
(% of total population) EU
Korea
Japan US
Australia and
New Zealand

27. 4. Korea’s Efforts for Globalization

28. < Korea’s Promotion of FTA >
4.1 Korea’s Efforts for Globalization (1/2)
Korea pursues to be a global leader, through FTA and the plan to be a Northeast Asian Economic Hub.
Korea aims to enhance regional cooperation and to be a center of R&D, logistics and financial services in Asia.
It also endeavors to transform into an open and globalized economy, promoting FTA with a variety of economies.
< Korea’s Promotion of FTA >
FTA completed
Negotiation in progress or to be started
FTA under consideration
Chile, Singapore, EFTA, ASEAN
USA, Canada, Japan, Mexico
China, EAFTA, India, MERCOSUR, EU

29. 4.1 Korea’s Efforts for Globalization (2/2)
Korea takes initiatives to improve political stability and
economic welfare in the region and in the world.
Korea completed FTA talks with Chile, Singapore, EFTA and ASEAN.
It started FTA talks with the USA.
It opens new era of peace and prosperity in the region through regional cooperation and freer trade.
Korea-US FTA will contribute to upgrading Korea for further
prosperity.
The increased trade, FDI and welfare due to FTA will consolidate its momentum for sustained economic growth.
More active participation into global production network will improve efficiency and competitiveness of its industries.
Upgrading social system and institutions to meet global standard will provide new opportunities for future development.

30. 5. Korea and New Zealand – Economic Opportunities

31. < World Trade Volume > < Bilateral Trade Volume >
5.1 K-NZ Bilateral Relationship in Merchandise Trade (1/3)
Korea was the 7th largest trade partner of New Zealand in 2005.
One of the most striking findings from the two nation’s trade relationship is the
complementarity.
Comparing the trade relationship between the two countries ten years ago, the
importance of Korea to NZ increased.
< World Trade Volume >
< Bilateral Trade Volume >
$265 bil
$248 bil
Year: 2005
Year: 2005
$890 mil
$595 mil
$22 bil
$25 bil
export import
export import
K to NZ NZ to K
Korea
New Zealand
Source: UN Trade Data, 2005

32. < Exports of Korea to NZ >
5.1 K-NZ Bilateral Relationship in Merchandise Trade (2/3)
Korea has build up comparative advantage in high tech
manufacturing product.
While Korea exported semiconductors, IT equipment and electronic parts, the
nation possessed disadvantage in natural resource.
< Exports of Korea to NZ >
Year: 2005
other
15%
General
Machinery
10%
IT Equipment
18%
Chemical
Products
17%
Food, Products
& Beverages
12%
Automobiles
15%
Basic Metals
13%
Source: UN Trade Data, 2005

33. 5.1 K-NZ Bilateral Relationship in Merchandise Trade (3/3)
Major imports of Korea from NZ included wood and bovine
meats.
Korea’s total imports to NZ was explained by food, beverage and Agriculture,
Forestry & Fishery.
Primary ferrous metal products and paper products also explained about 6%
of exports to Korea respectively.
< Imports of Korea from NZ >
< Major Imports of Korea >
Year: 2005
277
(million)
162
other 8%
Printing,
Paper
Products,
Publishing 6%
Chemical
Products 5%
Basic Metals
Agriculture
Forestry,
Fishery
37%
Food, Products
& Beverages
39%
Year: 2005 44 38 25 5
Wood of
coniferous
species
Fruit
vegetable
Bovine
meat
Other
cheese
Food
preparations
<Food, Products
& Beverages>
<Agriculture & Forestry,
Fishery>

34. Wood of coniferous species Sheepskins and lambskins
5.2 Market Share of NZ in Korea
The share of NZ in Korea market soared up in 2005.
In Wood , Fruit, Sheepskins and Bovine, the share of NZ in the Korea market
took more comparative advantages than other competitors.
Wood of coniferous species
1990
2005
New Zealand
45.2
U.S
17.9
71.3
16.1
Korea Market
Fruit, fresh,dried, nes
1990
2005
New Zealand
35.9
U.S 29 44
9.7
Korea Market
Sheepskins and lambskins
1990
2005
New Zealand
99.8
England 75 18
0.0
Korea Market
Bovine meat, frozen
1990
2005
New Zealand
30.3
Australia 5 58
66.9
Korea Market

35. 5.3 Korea-NZ Bilateral Relationship in Service Sector
There should be large opportunities of the expansion of relationship between Korea and NZ in a variety of service sectors.
In 2004, it was estimated that overseas expenditure for education reasons
reached as much as $5.1 billion.
In 2005, 10 million Koreans visited foreign countries and spent $1,239 for their
trips.
< Overseas Expenditure on Education & Training >
< Outbound Tourists and Expenditure >
10,077,619
Year: 2004
Unit: $mil
Year: 2004, 2005
Unit: person, $
8,825,585
2005
2004
$1,239
$3,378
studying
abroad
$1,169
2005
2004
$1,770
Training
abroad
Overseas Expenditure - Korea
Tourists
Expenditure per Capita

36. THANK YOU !