Korea, South - Future trends

South Korea went through a very difficult economic period in the late 1990s. Its gradual recovery has shown the resilience of its economy and its capability to grow further. The major factor for its success has been the strength of its export industries, the engine of growth since the 1960s. The diversification of this sector, which also includes high-tech industries, will ensure a position for South Korea as a major economic power and a major global exporter.

The high domestic labor costs have led to the relocation of some labor-intensive industries to other Asian countries like China and Vietnam. This process will likely be accelerated, especially because it can speed up recovery of the South Korean economy and help it grow faster by making its products more competitive in world markets.

If the current process of reconciliation between the 2 Koreas continues, better ties will likely lead to extensive production of South Korean goods-for-export in North Korea, where labor costs are much lower. Better ties will also provide a big opportunity for South Korean industries as their government has agreed to expand and modernize North Korea's crumbling infrastructure pending the settlement of major security concerns. The unification of the 2 Koreas could also turn a united Korea into a stronger economic and military power. Despite its current difficulties, South Korea has a large military force and is an economic power with a growing high-tech sector. North Korea suffers from major economic problems and requires heavy investments to repair its aging industries, devastated agriculture, and crumbling infrastructure. However, it has a very extensive industrial sector with an advanced military branch, a relatively significant mining sector, and a highly educated population. It is linked via land to China and Russia, which are South Korea's targeted markets. The combined economic and military capabilities of the 2 Koreas will likely help a united Korea to establish itself as a regional power in the Pacific.

The restructuring of South Korea's economy and the growing presence of foreign investors and enterprises in the previously protected South Korean market will impose bankruptcies and mergers on weak and small firms to make the larger firms strong enough to withstand foreign competition. Unless the economy grows fast enough to generate employment for the jobless, this situation could contribute to a growing unemployment rate with negative economic, social, and political consequences on South Korea. The role of foreign firms in its economy will significantly increase as its closed and highly-protected markets are opened.