S. Korean Economy’s External Dependence Rises for First Time in 6 Years open the window of AOD

Write : 2018-05-06


The South Korean economy's external dependence rose for the first time in six years in 2017.
This means exports and imports have been brisk on the back of the global economic recovery.
But this also spells caution as the domestic economy is also now more likely to be swayed by external factors.
According to Bank of Korea data, the ratio of imports and exports in proportion to gross national income (GNI) recorded 84 percent last year, up from 80.9 percent in 2016.
In the 1950s, this figure was in the single digits. But as South Korea rapidly industrialized in the 1970s, the ratio of exports and imports to GNI also topped 80 percent in 2007 and 100 percent in 2008 to reach 113.5 percent in 2011.
The figure then declined amid the slowing Chinese economy, contracting global trade and falling oil prices.
As Korea imports crude oil and exports petrochemical goods, lower oil prices generally reduce its imports and exports.
Last year, shipments of semiconductors posted sharp gains which also increased raw material imports.
Higher oil prices last year also factored in. Crude oil imports increased which led to more exports of petrochemical products.
Concurrent growth in both exports and imports indicates a brisk economy.
However, a rise in the export-import ratio to GNI implies that domestic demand has not revived to a sufficient level. This means expanded trade did not necessarily raise people's income.
The Korean economy's external dependence is higher than the OECD average of 53 percent, but it's not exceptionally higher than key members of the OECD.
Based on World Bank data for 2016, South Korea's export-import ratio to GNI ranked 21st out of 43 major economies.
Luxembourg at number one had a ratio of 599 percent followed by Ireland at 268 percent. The United States, with its huge domestic market, was at 26 percent, ranking 42nd.
A large domestic market lowers the percentage of that country's exports and imports, and vice versa.
It's natural for smaller economies to be more dependent on trade. But higher external dependence also means more vulnerability to external factors, which should be guarded against through robust growth of domestic demand.

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