from the St Louis Fed

— this post authored by Ana Maria Santacreu and Heting Zhu

South Korea has experienced one of the largest economic transformations of the past 60 years. It started as an agriculture-based economy in the 1960s,[ 1] and it became the 11th largest economy in the world in terms of gross domestic product (GDP) in 2016.[ 2] How did the industrialization miracle take place?

Factors in South Korea’s Economic Success

Many studies attribute South Korea’s structural transformation to policy reforms aimed at opening the country to foreign markets. Indeed, the export-oriented policies of South Korea are one of the most important factors of its success: South Korea is now one of the top 10 exporters in the world, and its exports as a percentage of GDP increased from 25.9 percent in 1995 to 56.3 percent in 2012.3

Two additional factors have contributed to the increase in international trade and industrialization in South Korea:

An improvement in the business environment

Policies incentivizing investment in innovation

Environment and Innovation

First, a strong business environment fosters growth in the domestic market and attracts foreign investors. According to the World Bank, South Korea is ranked No. 4 in terms of the overall Ease of Doing Business (DB) index in 2018, while the U.S. is ranked No. 6, as seen in the table below.4

2018 World Bank Doing Business Rankings   South Korea United States Japan China Ease of Doing Business Rank 4 6 34 78 Starting a Business 9 49 106 93 Getting Electricity 2 49 17 98 Getting Credit 55 2 77 68 Trading across Borders 33 36 51 97 Enforcing Contracts 1 16 51 5 Resolving Insolvency 5 3 1 56 SOURCE: World Bank Federal Reserve Bank of St. Louis