Performance Management in the Public Sector Weak 62: Program Evaluation Overview 2

1
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. Koreas Efforts for Globalization
5. Korea and New Zealand Economic Opportunities

3
1. Transformation of the Korean Economy
(1945-2005)
4
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
1953
1945
1995
2004
1980
1961
1970
1990
1998
2005
5
1.1 Overview - GDP Structure Employment
Structure
lt GDP Structure gt
Agriculture, fisheries, and mining 4
Agriculture, fisheries, and mining 45
Services 40
Manufacturing 28
2005
1963
Services 68
Manufacturing 15
lt Employment Structure gt
Agriculture, fisheries, and mining 6
Manufacturing 19
2005
1963
Services 75
6
1.2 Economic Take-Off with Outward-looking
Development Strategy (1/5)
lt Economic Conditions of the Early 1960s gt
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)
lt Working Mechanism of Outward-looking
Development Strategy gt
Foreign Capital Inducement (Economic Aids?
External Debt)
Capital Good Imports
Raw Material Imports
Government
Foreign Technology Imports
8
1.2 Economic Take-Off with Outward-looking
Development Strategy (3/5)
lt Growth in Imports and Exports gt
Imports
Exports
Trade balance
9
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)
lt Changes in Export Commodity Profile From
Light Industry to Heavy Industry gt
Semiconductor, Mobile Phone, DTV, Display,
Automobile, Ship-building, etc.
Export Commodity Profile
Semiconductor
HCI Product
79.8
50
Light Industry Product
14.1
Agricultural Product
6.1
1980
1990
2003
1960
1970
1999
11
1.3 Changes in the Development Strategy
(1980-97)
lt Pitfalls of the Government-led Economic
Development gt
Financial repression due to prolonged government
intervention
High inflation and large fiscal deficits
Over-investment in HCIs

• 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)
lt The Crisis of 1997 gt
13
1.4 Delayed Economic Reforms and the Financial
Crisis (2/2)
Cleaning up non-performing loans
- GDP growth -6.7 (1998) ? 10.7 (1999) -
Unemployment 6.8 (1998) ? 3.7 (2005)
Rapid economic recovery
Accelerating liberalization
Improving corporate governance

• - Early graduation from
• the IMF program
• - Foreign reserves of more than
• USD 200bn in 2005

Improved external positions
Expanding social safety net
- Debt-equity ratio 396 (1997) ? 182 (2002)
- No. of banks 33 (1997) ? 20 (2001)
Stronger corporate and financial sector
14
2. The Current Status of the Korean Economy
15
? KDI ????
I. ?? ???? / 15
2.1 The Current Status of the Korean Economy
(y-o-y, )
Note P denotes Preliminary. Source KDI
16
? ???? ??-??? ??
I. ?? ???? / 16
2.2 Risk Factors of the Korean Economy
Possibility of further increase in petroleum
price

• Low production capacity of petroleum producing
  countries
• Geo-political risks such as Iranian nuclear
  crisis
• - WTI (/bbl) 61.17 (Dec. 2005) ? 70.19 (June
  14, 2006) 14.7
• - Dubai (/bbl) 53.49 (Dec. 2005) ? 66.77
  (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 1011.9 (Dec. 2005) ? 954.1 (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.

lt School Enrollment Rate gt
the
number of enrollments in a specified age range
Note Enrollment rate ----------------------
-----------------------------------------------
the
whole population in the same age range
19
? ????? ????? ??
III. ??? ?? ?????? ? ???? / 19
3.1 Potential Growth Rate and Productivity (2/2)
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 RD activities
• Creating an investment-friendly environment
• Upgrading the institutional quality

lt Potential Growth and
Contributions gt
()
6.9
6.1
1.8
1.8
Productivity
4.8
3.9
3.3
1.6
Capital
2.3
1.2
1.0
0.9
Labor
19912000
19911997 (before economic crisis)
20032012 (after economic crisis)
Source KDI
20
3.2 Income Disparity
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.

lt Gini-Coefficients (1992-2003) gt
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
1
3.3 Industrial Restructuring and Challenges
from China (1/5)
??????
??????
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.
lt Korea Share of Employment by Technological
Level gt
lt Korea Share of Value Added by Technological
Level gt
Source Korea National Statistical Office, Mining
and Manufacturing Survey
22
3.3 Industrial Restructuring and Challenges
from China (2/5)
During 1993-2004, 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.

23
2
3.3 Industrial Restructuring and Challenges
from China (3/5)
Chinas export structure is rapidly converging
with that of Korea.

• Particularly, China achieved a large increase in
  the export of IT products.

lt China gt
lt Korea gt
Source UNCOMTRADE
24
6
3.3 Industrial Restructuring and Challenges
from China (4/5)
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 Koreas CA in semiconductors and
  elec.valves decreased, it is still higher than
  other major developed economies.

ltSemiconductor Electronic Valvesgt
ltComputers Office productsgt
ltRadio, TV Comm Equipgt

4
Korea
3.5
Japan
3
Korea
Japan
2.5
US
Japan
2
US
China
1.5
Korea
1
US
China
China
0.5
0
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.

lt Major Medium-High tech Products gt
ltMotor Vehicles Trailersgt
ltMachines Equipmentgt
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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

lt Share of the old (65) gt
27
4. Koreas Efforts for Globalization
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4.1 Koreas 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 RD, logistics and financial
  services in Asia.
• It also endeavors to transform into an open and
  globalized economy, promoting FTA with a variety
  of economies.

lt Koreas Promotion of FTA gt
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 Koreas 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.

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5. Korea and New Zealand Economic Opportunities

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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
  nations trade relationship is the
• complementarity.
• Comparing the trade relationship between the
  two countries ten years ago, the
• importance of Korea to NZ increased.

lt Bilateral Trade Volume gt
lt World Trade Volume gt
265 bil
Year 2005
Year 2005
248 bil
890 mil



595 mil

25 bil
22 bil


export import
export import
K to NZ NZ to K
Korea
New Zealand
Source UN Trade Data, 2005
32
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.

lt Exports of Korea to NZ gt
Year 2005
other 15
General Machinery 10
IT Equipment 18
Chemical Products
17
Automobiles 15
Food, Products Beverages 12
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.

• Koreas 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.

lt Major Imports of Korea gt
lt Imports of Korea from NZ gt
277
(million)
Year 2005
162
Year 2005
44
38
25
5
Wood of coniferous species
Fruit
Bovine meat
vegetable
Other cheese
Food preparations
ltFood, Products Beveragesgt
ltAgriculture Forestry, Fisherygt
34
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.

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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.

lt Overseas Expenditure on Education Training gt
lt Outbound Tourists and Expenditure gt
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
Expenditure per Capita
Tourists
Overseas Expenditure - Korea
36
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