The Economies of the UAE and South Korea - Essay Example

The Economies of the UAE and South Korea Student’s Name: Code + Course name Professor’s name University City, State Date Introduction It is evident that the UAE fell into the category of the least developed states across the globe thirty years ago. However, the economic development of the country has leapfrogged the known developed stages that other countries have passed through to have one of the fastest growing economies in the world and portrays an economic level that is almost equal to those of the industrialised countries. It is evident that the large oil reservoirs have played a substantial role in turning the country into the high mass consumption stage. The abundance of oil and gas natural resources have enabled the country to embrace resource-based industries (RBIs) rapidly in the implementation of its development strategy (Shihab 2001). In the 1960’s, South Korea exhibited a remarkable economic performance thereby attaining a per capita income of $27,000. At that time, South Korea was the world’s eighth-largest nation in trading. The country has recorded a declining trend in its economic performance over the recent years by recording a decline in its GDP from 7.9% between 1960 to 2000 to 4.1% between 2000 and 2010, and finally 3.0% between 2011 and 2015 (Lee 2016). The paper compares the economies of the UAE and South Korea by comparing their GDP among other variables. The paper also compares the future state of the economies of both countries. Gross Domestic Product i. Real GDP The United Arab Emirates (UAE) In 2007, the UAE recorded US$ 257.92 billion as its GDP. The figure increased to $ 315.48 the following year before dropping again to $ 253.55 in 2009. From 2009 to 2014, the GDP value for the economy has been increasing tremendously despite the slight slump recorded in 2015. In 2015, the UAE’s GDP stood at US$ 370.29. The UAE’s GDP value is approximately 0.60% of the global GDP. The average GDP recorded by the UAE stood at $ 120.26 billion from 1973 to 2015 (Trading Economics 2017). Throughout the entire period, the highest GDP figure recorded was $ 399.45 in 2014. From a general perspective, it is proper to state that the economic performance of the UAE has continued to improve over the last ten years. The chart below shows the GDP for the UAE between 2007 and 2015. Fig 1: The UAE GDP between 2007 and 2015 The Republic of South Korea In 2015, the GDP value for South Korea stood at US$ 25,022.80. As compared to the world’s average GDP, the GDP of the Republic of South Korea is 198% of the global average. The economy recorded an average GDP of $ 9,631.91 from 1960 to 2015 with the highest value being $25,022.8 in 2015 and the least being $1,102.53 in 1960 (Trading Economics 2017). As compared to the UAE, it is evident that the GDP value of the UAE is significantly higher than that of the Republic of South Korea. However, the common aspect of the GDP values of both economies is the fact that both economies recorded lower values in the 1960s, but have continued to record higher values in the later years leading to 2015. The chart below shows the GDP values for the Republic of South Korea between 2007 and 2015. Fig 2: South Korea GDP between 2007 and 2015 ii. GDP Growth Rate In 2015, the United Arab Emirates recorded an expansion of its GDP by 3.9%. For the period ranging from 2000 to 2015, the average GDP growth rate recorded by the UAE was 4.76%. The highest and lowest GDP rates recorded under the same period were 9.8% in 2006 and -5.2% in 2009. In the first quarter of 2017, South Korea recorded an expansion of its economy by 0.9%. The rate of economic expansion surpassed the anticipated rate of 0.7%. The previous two quarters had witnessed 0.5% expansions in GDP (Trading Economics 2017). This indicates that GDP growth rate of the Republic of South Korea is on an upward course. In the period ranging from 1960 to 2017, the average GDP growth rate recorded by South Korea was 1.82%. Comparing the average value for the GDP growth rate with that recorded by the UAE, it is evident that the UAE presents a comparatively higher average. The highest and lowest GDP growth rate values for South Korea were 7.8% in 1970 and -7% in 1998 (The Global Economy 2017). Similarly, the highest and lowest values of the GDP growth rate for South Korea are lower and higher than the values for the UAE respectively. This indicates that the performance of the UAE on the GDP growth rate index is better than the performance of the Republic of South Korea. The chart below compares the GDP growth rates for both economies between 2007 and 2015. Fig. 3: Real GDP Growth Rate for the UAE and South Korea iii. Per Capita GDP The average value for the GDP per capita recorded by the UAE between 1975 and 2015 was $ 67,117.94. The minimum value for the economic variable recorded by the UAE was $ 34,341.91 in 2010. The maximum value for the variable recorded by the economy was $115,003.43 in 1980. On the other hand, the Republic of South Korea recorded $ 9,631.91 as the average value for the GDP per capita between 1975 and 2015 (The Global Economy 2017). Comparing the average value with that of the UAE, it is evident that the average value of the UAE is higher than that of South Korea. The minimum and maximum values of the variable recorded by South Korea were $ 1,102.53 in 1960 and $ 25,022.8 in 2015. Over the last ten years, it is clear that South Korea has recorded a steady increase in its GDP per capita, contrary to the UAE that recorded successive declines in the variable from 2006 until 2011 when the economy started recording increments. The line chart below compares the trend of the variable for both countries. Fig 4: GDP Per Capita between the UAE and South Korea Consumption as a Percentage of GDP The average value for the human consumption as percentage of the GDP recorded by the UAE between 2001 and 2015 was 53.16%. The minimum and maximum value of the variable recorded by the UAE were 39.99% in 2013 and 61.37% in 2002. The variable has indicated several fluctuations between 2006 and 2015. Over the period, the period has declined from 60.2% in 2007 to 39.99% in 2013 before rising to 45.12% in 2015 (The Global Economy 2017). On the other hand, the average value for the GDP per capita variable recorded in South Korea between 1960 and 2015 was 62.25%. Comparatively, the average value is higher as compared to the value recorded by the UAE indicating that human consumption forms a significantly greater proportion of South Korea’s GDP as compared to the UAE. Moreover, the minimum and maximum values of the GDP per capita in South Korea were 49.34% in 2015 and 84.79% in 1964 respectively. Comparing the minimum and maximum values of the variable for both countries, it is evident that the values for the South Korean economy are greater than the values recorded in the UAE. The chart below compares the variable between both countries. Fig 5: Consumption as a percentage of GDP between the UAE and South Korea Investment as a Percentage of the GDP The average value for the capital investment as a percentage of the GDP recorded in the UAE from 2001 to 2015 was 23.79%. The minimum and maximum values of the variable in the economy were 19.27% in 2006 and 31.63% in 2009. From 2006 to 2015, the UAE has recorded fluctuating values of the capital investment as a percentage of the GDP, with the value stabilising between 2011 and 2013 before rising again to 27.48% in 2015 (The Global Economy 2017). On the other hand, the Republic of South Korea recorded an average value of 27.98% for the variable from 1960 to 2015. The value is significantly higher than that of the UAE implying that capital investment forms a major part of South Korea’s GDP as compared to the UAE. The minimum and maximum values of the variable recorded in the South Korean economy were 11.45% in 1960 and 36.85% in 1991. From the graph below, it is clear that South Korea has recorded a decline in the performance of the economic variable as compared to the UAE that has recorded fluctuations of the variable. Fig. 6: Capital Investment as a Percentage of the GDP for the UAE and South Korea Government Expenditure as a Percentage of GDP The average value recorded by the UAE for its government spending as a percentage of the GDP between 2001 and 2015 was 9.59%. The minimum and maximum values for the variable were 6.73% in 2007 and 13.16% in 2015. From the bar graph below, it is clear that the UAE has managed to record successive increments in the variable from 2006 to 2015 (The Global Economy 2017). On the other hand, average value of the variable for South Korea was 11.64%. Apparently, the value is higher than the average value recorded in the UAE by a significant margin. The minimum and maximum values of the variable recorded in the South Korean economy from 1960 to 2015 were 8.27% in 1973 and 15.21% in 2015. From the values of both economies, it is clear that government spending forms a greater part of South Korea’s GDP as compared to the UAE’s. The chart below compares government spending for both economies between 2006 and 2015. Fig. 7: Government spending as a percentage of the GDP for the UAE and South Korea Net Exports as a Percentage of GDP The overall trend for the net exports as a percentage of the GDP in the UAE is positive as evidenced by the positive increments that the economy has recorded from 2006 to 2015. In 2006, the value of the indicator for the UAE was 119.476%. The value increased to 153.462% in 2009 before declining slightly to 151 in 2010. From 2011 until 2015, the value recorded positive increments. On the other hand, the values for the variable recorded by South Korea are significantly lower than the values recorded by the UAE. As a result, it is proper to state that net exports play a significantly greater role in the GDP of the UAE as compared to that of South Korea. In 2006, net exports formed 73.551% of South Korea’s GDP. In the 10-year period, the value has exhibited incremental fluctuations to a high of 110% in 2011 before dropping to 84.843% in 2015 (The World Bank 2017). The chart below compares the trend of the variable over the period for both countries. Fig 8: Net exports as a percentage of GDP for the UAE and South Korea Unemployment Rate As compared to 2015, the UAE recorded a decline in its unemployment rate in 2016 to 3.69% as compared to the previous year, 3.81%. Considering the average unemployment rate recorded in the economy from 1985 to 2016, the UAE recorded an average value of 3.15%. The minimum and maximum values of the variable recorded in the UAE were 1.15% in 1985 and 4.20% in 2009 (Trading Economics 2017). In relation to the trend of the variable in the recent years, the UAE has continued to record a significant decline in its rate of unemployment indicating a massive improvement in the proportion of individuals that participate in the active labour force. On the other hand, the Republic of South Korea has recorded fluctuations of its unemployment rate between 2007 and 2016. Considering the average value for an extended period such as from 1991 to 2016, it is clear that South Korea recorded an average value of 3.49%. Over the extended period of analysis, the minimum and maximum values recorded for the South Korean economy were 2.05% in 1996 and 6.96% in 1998. The chart below compares unemployment rates for both countries between 2007 and 2016. Fig. 9: Unemployment rate for the UAE and South Korea Labour Force Participation Rate The average value for the labour-force participation rate in the UAE from 1990 to 2014 was 76.39%. The minimum and maximum values recorded for the economy were 72.7% in 1990 and 80.5% in 2014. From the values, it is clear that a significant proportion of the UAE population aged 15 years and above are economically active as unemployed or employed individuals. On the other hand, South Korea recorded an average of 61.03% as the labour participation rate between 1990 and 2014. The minimum and maximum values for the variable recorded in the period were 60.1% in 1990 and 62.5% in 1997 (The Global Economy 2017). From the values of both economies, it is clear that the labour-force participation rate in the UAE is higher than the rate in South Korea. The level of participation of individuals aged at least 15 years in the UAE is greater than the level of participation of the same group of individuals in South Korea’s labour force. The graph below compares the labour force participation rates for both countries from 2005 to 2014. Fig 10: Labour-force participation rate for the UAE and South Korea Consumer Price Index In the period running from December 2007 to March 2017, the average value recorded by the UAE for the labour force participation rate was 97.76 index points. During the period, the maximum and minimum values of the variable recorded for the UAE were 107.78 index points in March 2007 and 48.86 index points in December 2007 respectively (The Global Economy 2017). On the other hand, the Republic of South Korea recorded an average value of 97.05 index points for the variable between January 1995 and April 2017. The minimum and maximum values for the variable recorded in the economy were 80.64 in January 2007 and 102.79 in March 2017. The chart below compares the values of the variable for both countries from December 2007 to December 2016. Fig. 11: Consumer Price Index (CPI) for the UAE and South Korea GDP Deflator GDP deflator or inflation measures the rate of price change in the economy of a country as a whole. The UAE recorded fluctuations in the GDP value over the selected period. The minimum and maximum values of the variable recorded over the period were 100.54 in December 2010 and 129.67 in December 2012 and 2013 respectively. The value dropped from 129.29 in 2015 to 114.56 in 2016 thereby indicating a decline in the rate of price change recorded in the country. Contrary to the UAE, that has recorded fluctuations in the GDP deflator value over the period; the Republic of South Korea has recorded a steady increase in the value in the period. From 1960 to 2016, the average value of the variable was 47.39 index points. The maximum and minimum values were 109.73 index points in 2016 and 0.79 in 1960. The GDP deflator value recorded in 2016 was 106.44 index points (Quandl 2017). The chart below compares the value of the variable for the two nations. Fig. 12: GDP Deflator for the UAE and South Korea Foreign Direct Investment The average value for the foreign direct investment variable in the UAE from 1970 to 2015 was $ 2.54 billion. The minimum and maximum values of the variable recorded during the period were -0.99 billion in 1999 and $ 10.98 billion in 2015. On the other hand, the average value for the foreign direct investment recorded by the Republic of South Korea from 1976 to 2015 was $4.53 billion. From the figure, it is evident that the direct investment equity flows in South Korea are greater than the equity flows for the UAE. During the period, the minimum and maximum values recorded by the South Korean economy were $ 0.01 billion in 1980 and $ 5.04 billion in 2015 (The Global Economy 2017). The chart below shows the FDI values for the UAE and South Korea. Fig. 13: Foreign Direct Investment for the UAE and South Korea The Future Outlook The UAE Despite the rise in the price of oil, it is evident that the UAE will record a growth of its economy. Non-oil sectors will also record positive improvements. The tremendous performance of the economy in the last quarter of 2016 revealed a growth on the country’s economy. Consequently, the UAE will display the highest rates of economic growth in the Arabian Gulf. Higher oil prices will increase the expenditure of the country thereby improving the economic outlook of the country. As compared to the previous six months, the UAE recorded the highest performance of non-oil sectors in January 2017, and indicator that the sector was also recording positive improvements. The improved performance of non-oil sectors emanates from the rise in new orders, increased overseas demand, and increased output (Kassem 2017). The Republic of South Korea The economy of South Korea continues to grow at a moderate pace because of the record low rates of interest and the supplementary budget. Towards the closure of the 2017 and 2018 financial years, the country anticipates 2.75% and 3% growth in its economy. According to the projections of the Central Bank of the economy, the rate of inflation will stand at 2% in 2018. The consolidation of the budget in 2017 will contribute towards restraining the anticipated growth of the economy. The economy also anticipates an increase in its expenditure because of its low public debt and persistent government surpluses (OECD 2016). Conclusion The persistent rise in the GDP of the UAE is an indicator of the tremendous performance of the economy. As a result, the UAE economy anticipates the continuous growth of its real GDP over the next few years. The real GDP of the UAE exceeds the GDP value for South Korea by a significant margin. Regardless of the comparatively lower real GDP values, South Korea has also continued to record steady increments in its real GDP. Per capita consumption as a percentage of the GDP in South Korea is higher than that in the UAE. South Korea has also recorded higher values of capital investment as a percentage of the GDP as compared to the UAE over the recent years. Moreover, the government expenditure as a percentage of GDP in South Korea is greater than the values for the UAE. However, net exports form a slightly lower percentage of GDP in South Korea as compared to the UAE. Finally, the rate of unemployment and labour force participation in the UAE has been greater than the rate recorded in South Korea over the recent years. Reference List Kassem, M 2017, ‘Outlook for UAE Economic Growth Improves: Poll says’, The National. Available from: http://www.thenational.ae/business/economy/outlook-for-uae-economic-growth-improves-poll-says Lee, J W 2016, ‘The Republic of Korea’s Economic Growth and Catch-Up: Implications for the People’s Republic of China’, ADB Institute. OECD 2016, ‘Korea: Economic forecast summary (November 2016)’. Available from: http://www.oecd.org/economy/korea-economic-forecast-summary.htm Quandl 2017, ‘Korea GDP Deflator’. Available from: https://www.quandl.com/data/ODA/KOR_NGDP_D-Korea-GDP-Deflator Shihab, M 2001, ‘Economic Development in the UAE’, United Arab Emirates: a new perspective, pp.249-59. The Global Economy 2017, ‘South Korea: Economic Growth’. Available from: http://www.theglobaleconomy.com/South-Korea/Economic_growth/ The World Bank 2017, ‘Trade (% of GDP)’. Available from: http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS?end=2015&locations=AE-KR&start=2001&view=chart Trading Economics 2017, ‘South Korea GDP’. Available from: http://www.tradingeconomics.com/south-korea/gdp-per-capita Trading Economics 2017, ‘United Arab Emirates GDP Growth Rate’. Available from: http://www.tradingeconomics.com/united-arab-emirates/gdp-growth Trading Economics 2017, ‘United Arab Emirates GDP’. Available from: http://www.tradingeconomics.com/united-arab-emirates/gdp Read More