Comparative Economic System of the South Korea and North Korea - Term Paper Example

Comparative Economic System Introduction Over the last few decades South Korea has witnessed an incredible growth and even at the same time has demonstrated global integration. These factors have made the region to be considered as a high tech economy in comparison to North Korea. North Korea on the other hand is considered to be the least open economy that is centrally directed and even is subjected to a lot of economic problems. South Korea though possesses an industrialized economy but is often subjected to a lot of issues that are of long term such as aging population, large dependency on the exports as it constitutes half of its gross domestic product (GDP), and inflexibility in the labor market. On the contrary the government of North Korea in order to improve the economic system plans and develops strategies and even focuses on its major goal of being prosperous and a strong nation. The North Korean government gives more importance to the foreign investment and considers this to be the tool for improving living standard of the region. However the overriding concern of the government is its political control that is likely to inhibit certain fundamental reforms in the present economic system of the region. Literature Review According to Gregory & Stuart (2013), the economy of South Korea grew enormously and the structure of the economy has even transformed radically since 1962 with the support of First Five Year Plan of Economic Development. The GNP of the region had expanded by 8% annually. In 1962 GNP of South Korea was US$2.3 billion which increased rapidly and in 1982 it became US$204 billion. The economic growth that rapidly increased however slowed down in the year 1989. In comparison to the previous year, the growth rate was decreased to half and even there was an increase in inflation rate which was associated with rapid increase of wages. In the year 1990, the region even had witnessed a trade deficit and the various forms of developments indicated slowing down of an economy that was rapidly maturing. However the domestic demand of South Korea was increasing that clearly stated that the economic system would be healthy until there is no such political crisis that would create an adverse effect on the economy. The growth of industrialization in the country was majorly due to the adoption of a strategy that was more of outward looking in the year 1960. This strategy proved to be very effective as the natural resource endowment was very poor in this region, the domestic market was small and savings rate was also low. There have been great economic reforms in this region and in the year 2004 it became a part of the trillion dollar club of the world economies (Gregory & Stuart, 2013).In the present scenario South Korea is considered to be the 12th biggest economy across the globe. According to Lee & Shim (2012), North Korea has always been surrounded by serious economic problems that have been deteriorating its economic system. The industrial capital stock of the country is beyond the scope of repair and these situations has resulted due to underinvestment for many years, poor maintenance and spare parts shortages. There is a large scale spending on the military forces of the country which draws off almost all the resources that is essential for civilian consumption and investment. For many years now the power and industrial output has stagnated in this region. There has even been crop failures due to weather conditions that has resulted into shortages of chronic food which in turn has caused systematic problems, shortages of arable land, low quality of soil, shortages of fuel and tractors, inefficient farming practices and insufficient fertilization. The population in this region continues to suffer from poor living standards and malnutrition. In the year 2002 the government of North Korea had issued the permission for the markets of private famers to sell more diverse goods. The North Korean government in the year 2012 has increased their focus towards the economy through commitment renewal in association with the China’s economic zones and even negotiated on the payment structure so as to settle down to $11 billion and even proposed new industrial and agricultural policies in order to trigger the domestic production (Lee & Shim, 2012).These policies can bridge the gap between basic needs of the population and the food shortages, as almost 40% of the total population still suffers from diseases and malnutrition in North Korea. Methodology/Analytical Approach The research methodology that has been adopted for this particular study on comparative economic systems is qualitative research methodology. This form of research method has been adopted as more of information can be available through journals, government websites, articles, etc., which would provide sufficient insights that would help to analyze the economic system of South and North Korea. The secondary data collection approach is utilized in this research study. The major parameters that have been incorporated through the secondary sources for comparison between the two economies are population, unemployment rate, GDP, balance of trade and inflation rate. The population factor as an economic indicator would help to analyze the population growth over the years and this is even an indication for a stable economy. This economic indicator is analyzed over a time period of five years. The graph below states the population growth from the year 2010 to 2014 in North Korea- (Source: Trading Economics, 2014) The above graph depicts that total population of North Korea as recorded in the year 2013 was 24.9 million. The population growth in South Korea is elaborated with the graph given below- (Source: Trading Economics, 2014) The above graph states that there has been growth in the population rate in South Korea but the increase has not been more in comparison to North Korea. South Korea encompasses rapidly aging population and the population growth rate over the past fifty years has been steady but not higher than that of North Korea. The next economic indicator for comparison is unemployment rate of both the countries. This parameter would help to analyze as to whether the economy is healthy or not because unemployment rate is directly associated with the productivity of the country. The graph below depicts the unemployment rate of North Korea. (Source: Trading Economics, 2014) The rate of unemployment over the past five years has increased rapidly in North Korea and as recorded by World Bank the unemployment rate in the year 2013 was 4.6. The unemployment rate in South Korea over the past five years can be well described through the graph given below- (Source: Trading Economics, 2014) The unemployment rate in South Korea has decreased over the years and in May of the current financial year the rate of unemployment was 3.70% which has decreased to 3.60% in June 2014. The third economic indicator that would be utilized for comparison of the two economic systems id the factor of GDP. The graph below states the GDP of North Korea- (Source: Trading Economics, 2014) The GDP of the country has fallen to 14.41 billion US dollars from the worth of 15.69 billion US dollars. The GDP of South Korea can be illustrated further through the graph given below- (Source: Trading Economics, 2014) The GDP of South Korea has shown a rapid increase over the past five years and now stands at worth of 1304.55 billion US dollars. The other most essential economic indicator is the inflation rate and below given graph states the rate of inflation of North Korea- (Source: Trading Economics, 2014) The inflation rate of North Korea on the monthly basis is 85 at an average over the past four years. The graph for inflation rate of South Korea is given below – (Source: Trading Economics, 2014) The inflation rate of this economy as recorded on monthly basis has shown a decrease in percentage as it is traced to be 0.13 percent in June in the current year in comparison to that of May which was 0.62 percent. The next economic indicator for comparison is that of balance of trade. As an indicator this helps to analyze the trade deficit of a country. The trade deficit indicates the differences between exports and imports of a country. The graph given below illustrates the balance of trade in North Korea- (Source: Trading Economics, 2014) The figures clearly illustrates that the country is witnessing a trade deficit of 763.78 USD Million. The balance of trade of South Korea can be illustrated with the help of the graph given below- (Source: Trading Economics, 2014) On the contrary as stated by the above graph South Korea has witnessed a trade surplus that extended to a worth of 5453.83 USD Million. Analysis and Results The results that have been derived from the various secondary sources state that the economic system of South Korea is more stable than that of North Korea. The rapid growth of population in North Korea states that there is more need to have stable economic conditions but this is not being achieved by the North Korean government. The population growth has been equally rapid in the case of South Korea but the higher authority has well analyzed the economic scenario and developed strategies so as to reform the economy as an industrialized economy. The higher unemployment rate of North Korea clearly depicts the fact that there is absence of employment opportunities in this region which indicates that the productivity level of this region is very low in comparison to South Korea. The figures in the unemployment rate graph of South Korea state that this issue of unemployment has decreased over the years. This is indeed a good sign for a stable economy as there are more job opportunities and the productivity level of the economy is also high that states the maximum percentage of population has higher living standards. The factor of GDP is also essential to indicate the economic status which is stable in the case of South Korea and is mainly due to the fact that there is more of industrialization in this region. On the other hand the GDP of North Korea has decreased which indicates that the region is subjected to vital economic problems. A proper inflow and outflow of funds can be stated through the rate of inflation and in the case of South Korea this rate has decreased which indicates that there is no major turmoil in the economic conditions. The trade deficit factor of North Korea indicates that the country is largely dependent on the exports which are not beneficial long term stability of an economy. However the trade surplus of South Korea states that the country is able to balance all the elements of international trade effectively. Conclusions and Recommendations On basis of analysis it can be stated that economic system of South Korea is stable in relation to that of North Korea. The major factors being the low inflation rate, trade surplus and low unemployment rate which enhances the standard of living. However the conditions are not the same in case of North Korea this is simply because of the fact that there is extensive political control in this region with less of flexibility in the system. The only recommended way to stabilize the economic system is through triggering the growth of industrialization in this region and facilitating more of foreign investment in the country. References Gregory, P., & Stuart, R. (2013). The Global Economy and Its Economic Systems. USA: Cengage Learning. Lee, M., & Shim, J. S. (2012). The Korean Economic System: Governments, Big Business and Financial Institutions. UK: Ashgate Publishing, Ltd. Trading Economics. (2014). North Korea Economic Indicators. Retrieved from: http://www.tradingeconomics.com/north-korea/indicators. Trading Economics. (2014). South Korea Economic Indicators. Retrieved from: http://www.tradingeconomics.com/south-korea/indicators. Read More