This study aims to look into the current state of Korea’s trade and the changes in internal and external circumstances surrounding it, and to use the implication to seek out a desirable future path for Korea’s trade.
Export has played a leading role in the economic progress of Korea. Although the excessively disproportionate support for exporters by the Korean government produced structural problems that prevented balanced growth of the country, Korea’s export has grown almost 20% per year since 1960s, contributing 20~50% to the country’s overall economic growth. Together with its expansion in absolute amount, Korea’s trade went through a structural transformation, deepening into heavy and chemical industries since 1970s.
While Korea basically has a processing trade system like many developing countries, where companies import intermediary and capital goods before processing and exporting them, some Korean industries such as electronics, office machines and automobiles are breaking away from the pattern with net imports of parts and materials in those sectors reaching equilibrium level. Industries that have traditionally specialized in export, such as clothing or shoes, are declining, whereas electronics, electrics, and general device sectors are increasing in exports and replacing imports as well. These developments are gradually changing Korea’s trade patterns of exporting light industry goods and importing heavy industry ones. Especially in the late 1980s, Korea’s trade pattern underwent a radical transformation.
Analysis of comparative advantage shifts in Korea’s industries reveals that the country’s labor-intensive sectors lost much of their competitive edge as the overall wage level grew significantly from the mid 1980s. In textile, clothing, shoes, and electronic/electric devices, Korean companies are having a hard time competing with their counterparts in China and ASEAN countries. Also, Korea is showing a relatively slower degree of sophistication in trade than other major Asian countries. The serious trade slumps that Korea has recently suffered for several years can be explained by the fact that the country has not invested sufficiently in developing technology or new products and improving overall productivity, and has not developed capital/technology-intensive industries which could replace the labor-intensive sectors, where Korea is rapidly losing its edge.
The study concludes that in order to stay competitive in the global trade race, Korea must set out on an active restructuring and constantly reform the existing production system, thereby maintaining the dynamism of domestic industries and keeping the industrial structure in optimal shape.