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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Korea's Export Competitiveness and Prospects

Korea's Export Competitiveness and Prospects

KIM Deuk-Kab

May 2, 2007

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In 2006, Korea's exports grew at a double-digit rate for their fourth consecutive year, the first time the nation experienced such sustained performance since the 1980s. Exports in 2006 reached US$326 billion, making the nation the world's 11th largest exporter.

This performance is meaningful because it was despite falling value of the Korean won and consequent weaker price competitiveness vis-a-vis other exporting nations. Between 2003 and 2006, the won appreciated by 21.6% (or at a 5.8% annual average). During the same period, exports managed to grow 19.3% annually, surpassing the world average of 16.3%, and putting the nation in second place in growth among the 11 largest exporters.

The surge in exports also was achieved despite burgeoning intra-regional trade within major trading blocs. In the European Union, intra-regional trade accounts for 48% to 79% of exports while among the NAFTA members, 37% of the United States' exports and 85% of Canada's exports are sent within the bloc. If such intra-regional trade were excluded, Korea would have ranked fifth place in export volume.

Amid weak private consumption and corporate investment, exports have been Korea's sole economic engine since 2003. GDP growth excluding exports has hovered at an anemic 0.5 to 3.8% since 2003. In addition, exports have helped lift sovereign credit ratings by international credit ratings agencies. The trade surplus from the increase in exports buoyed Korea's foreign exchange reserves to US$238.4 billion as of 2006, making it the world's fifth largest holder of international reserves. Finally, exports have allowed Korea to maintain a net creditor status since 2000, with net external credit (i.e., total credit minus total liabilities) standing at US$105.8 billion as of June 2006.

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