Economic Systems of South Korea and Japan Term Paper

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economic systems of South Korea and Japan

South Korea and Japan which are two emerging countries have had an extremely close economic relationship between them that dates back from the ancient times of the countries to the present. As a result of this, the countries have experienced similar patterns in their economic growth and development though there have been disparate differences that have been brought about by several factors Smith, 1997()

It is natural to do a comparison of two emerging countries in order to find out similarities and differences in their major characteristics that may have led to the growth of one country being mirrored in another Rosser & Rosser, 2004.

Both countries have emerged from a war period which devastated their economy greatly and ruined their infrastructure completely. However, they have both climbed out of these periods and managed to succeed in building global economies by taking advantage of foreign investment that helped them rebuild their country. South Korea and Japan also enjoy close economic and political relations with other countries such as the United States which places them in a strong position to sell their exports K. Oh & Hassig, 2010.

In the United States, both countries are among its Top 10 largest trading partners Iyoda, 2005()

Comparative capitalism has been shown to foster innovation, growth and efficiency in countries including South Korea and Japan which have experienced above average growth which has surpassed those that have been primarily socialist. These countries have also experienced a wave of privatization that has swept these countries with the intent of creating competition that has allowed them to compete in international markets C.H. Oh and Arrington (2007)

argues that the economies of South Korea and Japan are two sides of one coin meaning that they are the same in almost every way. Both countries experienced a period of economic crisis which they have both recovered from. Additionally, the economies of both countries are majorly export-oriented. This should not be construed to mean that the countries are export-dependent. However, exports contribute a major share of the countries' economies. Both countries also have been characterized largely by family-owned businesses which have strong political ties which have enabled the businesses to succeed Lie & Kim, 2008()

Despite the many similarities that exist between the South Korean and Japan economies, the two have inherent differences as a result of the countries taking different paths after the economic crisis that they faced. Currently South Korea has an economic debt of about 23% of its total gross domestic product (GDP) which is easily manageable. Furthermore, its most recent GDP growth stands at roughly 0.2% meaning that the country's debt is decreasing though at an extremely slow pace. Japan, on the other hand, has a public debt of slightly over 200% of its total gross domestic product. This debt figures are extremely devastating for a country which may be the reason why the country's GDP growth currently standards at about 5% meaning that the country's economic debt is still on the increase Sakuma & Louche, 2008()

Brief history of the two countries

History of South Korea

This history focuses majorly on the periods after the Second World War. Japanese forces occupied the Korean Peninsula for more than 35 years from 1910 till when the Second World War ended in 1945. The countries, however, had existing agreement which required Japanese forces in the North and South Korean Peninsula to surrender to the Soviets and the United States respectively. From 1950 to 1953, the Korean War ensued which was an attempt by North Korea which was turned into a communist state by the Soviets to convert the whole of Korea into a communist country through Maoist rule. China was one of the major countries that backed the Korean War. Although the war was officially never ended, in 1953, China and the United Nations agreed to leave Korea as two separate countries, North and South Korea as they are known as today Kim & Lie, 2007()

By the time when this agreement came into place, South Korea was largely underdeveloped and its agrarian economy depended largely on foreign investment and aid. The military was also the leadership of the country for over 25 years which made the country to be largely repressive most of the times and it was difficult to achieve flexible commitment to economic development KatzKatrin & Cha, 2012()

However, thanks to the "Miracle on the Han River" which was South Korea's postwar economic growth that was fueled by export, there was rapid industrialization, education boom, technological achievement, rapid urbanization, modernization, skyscraper boom and large rise in citizen's living standards. This transformed South Korea into a rich economy and made it a wealthy and developed country. During this period of the 'miracle', the country's economy grew by an average rate of 9% and the per capita income (PCI) increased by more than 100-fold Kalinowski & Cho, 2009()

South Korea, however, experienced slow growth in the late 20th Century that was partly as a result of the economic recession that was being experience in other parts of the world such as the United Kingdom and the United States. This led to the company experiencing an economic crisis. In 1997, the government had to take a $57 billion bailout from the International Monetary Fund (IMF) which was at the time the largest bailout that had even been given to a country in IMF history. The company also had to struggle with building its lesser businesses which were not part of the large family owned businesses Dent, 2003.

The government also made several attempt to liberalize its economy. As a result of consistent efforts to grow the economy, the country enjoyed a recovery and created a firm economic footing in the 21st Century Coe & Lee, 2006()

History of Japan

Japan experienced economic devastation after World War II as a result of the country's industries and infrastructure being destroyed. After the Second World War, the country was occupied by the U.S. For 7 years which was where the country majorly received funding and aid from the U.S. To cover reconstruction of the agricultural and industrial sectors through provision of farm inputs such as seeds and fertilizer and industrial products. The country, thus, immediately began efforts of systematic rebuilding to transform the country to an economic powerhouse as it was earlier. These efforts began in the mid-1960s Rosenbluth, 2011()

The country was also favored by the Post World War II World War Peace Clause that stated that Japan was not to maintain its own military forces. This meant that the U.S. had to provide Japan will all military protection that the country needed. Therefore the Japanese government saved its military expenditure which was the channeled to other sectors such as banking and investment leading to what is today known as the "postwar economic miracle," Park & Vogel, 2007()

Statistical comparison of the countries

The population of Japan stands at over twice that of South Korea with Japan having 128 million while South Korea has a population of 50 million placing the countries at 10th and 25th positions in the world respectively. Japan's population generates about 3 times the GDP generated by South Korea. South Korea's GDP is at 1.6 trillion U.S. dollars while that of Japan is 4.4 Trillion. However, when it comes to the per capita GDP, the countries only have slight difference though Japan is still superior to South Korea. Japan's GDP per capita is slightly over $34,700 while that of South Korea is slightly over $23,700.

In terms of economic growth, South Korea is experiencing higher growth than Japan. South Korea's GDP growth stands at 0.2% compared to Japan's GDP growth which currently stands at slightly lower than -5%. Inflation in South Korea is much higher than that of Japan which is much lower than that of the U.S. The U.S. has an inflation rate of 1.9% while that in Japan is 0.3%. South Korea's inflation rate stands at 4.2%. As earlier stated, Japan's current public debt is about 200% of its GDP while that of South Korea stands at 23% of the country's GDP Bae, 2010()

These statistics may lead one to the conclusion that the Japanese economy is in a much better state compared to that of South Korea. However, the fact of the matter is that Japan has more than twice the population of South Korea yet their GDP per capital is just slightly higher than that of South Korea. Additionally, the higher inflation rate in South Korea is expected since the country's economy is growing at a better rate than Japan. Additionally, 95% of Japan's public debt is internal meaning that the country has less pressure to pay back its debtors Low, 2006()

Growth of economic relations in a globalized environment

Since the start of the 21st century, South Korea has made a lot of progress towards globalizing its economy. South Korean companies have been encouraged towards accelerated global growth and expansion through…[continue]

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