South Korea's economy: planned from textiles to memory chips

What the economy started from after partition

The republic began with the wrong half of the colonial economy. Japan had industrialised Korea as a supply base, but it put the heavy industry in the north, so the Republic of Korea started in 1948 with a surplus of light industrial plant and too few power stations. Enterprises taken from Japanese owners were passed gradually to private hands until 1962, and some of the businesses that acquired them later grew into the conglomerates called chaebol.

Land came first. A land reform act, more conservative than the North's, redistributed farmland through compensation and sale, and by 1951 most of it was self-cultivated. Aid from the United States, begun in 1945, paid for consumer goods and basic industrial imports, and much of it was misappropriated, some of it by future chaebol founders. The war of 1950 to 1953 destroyed most production facilities. After the war the Rhee government regulated imports to encourage production at home, and when reconstruction spending and aid slowed at the end of the 1950s a recession followed. The Miracle on the Han River article describes the country at the end of the Pacific War as among the poorest regions in the world and still largely agricultural in the 1950s.

How the state chose the industries

The economy that followed was drawn up industry by industry. After the coup of 1961 the military government created an Economic Planning Board, and the first Five-Year Plan ran from 1962 to 1966. With few natural resources, low savings and a small home market, it began with labour-intensive exports. Textiles made up 41% of exports by 1965, the year relations with Japan were normalised, and during the Third Republic Japan paid US$800 million on property claims.

In 1973 the government turned to heavy industry. Through its National Investment Fund and the Korea Development Bank it put large sums into six industries it called strategic: steel, non-ferrous metals, shipbuilding, industrial machinery, electronics and petrochemicals. The World Bank was among the outside critics at the time. The state built what private firms could not finance: the Pohang Iron and Steel Company, POSCO, was founded under state ownership in 1968 with Japanese financial and technical help. A shipbuilding promotion law of 1967 funded the yards, and Hyundai formed its shipbuilding company in 1972.

The firms that carried the plans were chosen too. Chaebol that met the government's export quotas received guaranteed bank loans and access to foreign technology, and the state guaranteed their repayments to foreign creditors. Kia made the first car designed and built in South Korea in 1974, and the first car exports followed in 1976. Samsung decided in 1983 to enter memory chips and made 64-kilobit DRAM that year. George E. Ogle attributed 60% of the economy's growth in this period to ten chaebol families. Britannica's summary of the period names the same ingredients: export-oriented industrialisation from the 1960s, heavy public investment in infrastructure and education, and family-controlled groups such as Samsung and Hyundai.

How the electronics industry was built

Electronics came through subcontracting. Goldstar, founded in 1959 to assemble radios, was making televisions, telephones and home appliances within a decade, and after 1965 South Korean firms began supplying Japanese ones, which brought technology with the orders. A policy of 1969 offered easy credit and tax breaks, and Samsung and Daewoo set up electronics firms that started with television sets. Foreign companies came for cheap labour, much of it female, and long working hours; in 1972 eight foreign firms made about a third of the country's electronics.

The domestic market was protected while the firms learned. Laws of 1983 restricted low-end computer imports and limited foreign investment in the sector to joint ventures. In the early 1990s the government licensed only the CDMA mobile standard, while most global brands used GSM, which kept foreign handsets out. Samsung and LG entered LCD panels in 1995 and mass production of OLED displays began in 2007, though China's share of LCD passed South Korea's in 2018. Batteries followed the same path, from development in the 1980s to electric-vehicle cells from 2009, with a battery strategy announced in July 2021.

The price of the model was paid in the countryside and on the shop floor. By the 1970s income between industry and farming had diverged, and the government introduced high grain prices and the Saemaul village movement in 1971. Wages were held down to keep exports competitive until labour stoppages and a shortage of workers pushed manufacturing pay up sharply in the late 1980s. The economy shrank in 1980 for the first time since 1962, and the decade that followed brought tight money, a new antitrust law with the Korea Fair Trade Commission, and, after the Plaza Accord of 1985, prices that made Korean goods more competitive against Japanese ones.

How the currency crisis broke the chaebol

The growth model broke in 1997. After joining the OECD in 1996 and liberalising finance, companies and banks borrowed heavily in short-term US-dollar debt to finance long-term projects. Several chaebol went bankrupt early in 1997, the won began to fall in August, and by December the International Monetary Fund had approved a US$21 billion loan within a US$58.4 billion rescue. In South Korea it is known as the IMF crisis.

The chaebol were cut down in the process. Of the 30 largest groups, 11 collapsed; Daewoo, with some US$80 billion of unpaid debt, was dismantled in 1999. By January 1998 a third of the merchant banks had been shut. The country had seven major carmakers before the crisis and two afterwards, apart from two smaller ones continuing under General Motors and Renault, and Hyundai bought 51% of the bankrupt Kia in 1998. The government ordered groups to swap business units, which merged the chip businesses of Hyundai and LG into what became SK Hynix.

Recovery was fast, though consumer credit produced a second shock. To revive spending the government deregulated credit cards in 1997, and by 2003 millions of South Koreans had defaulted on card debt and LG Card had to be bailed out.

The headline numbers recovered first. Growth reached 10.5% for 1999, the government declared the crisis over that December, and the IMF loan was repaid in 2001. The surviving chaebol have grown substantially since, with far less debt. In January 2009, when exports of cars and semiconductors fell by 55.9% and 46.9%, the economy still avoided a recession in the first quarter.

What South Korea sells abroad

Exports reached US$709.7 billion in 2025, up 3.8%, the first year over US$700 billion, according to the Ministry of Trade, Industry and Resources. Imports were US$631.7 billion, broadly flat, which left a trade surplus of US$78.0 billion.

The buyers were spread wider than before. China took US$130.8 billion, down 1.7%, and the United States US$122.9 billion, down 3.8% as sales of cars, machinery and parts fell, cars under tariffs; ASEAN took US$122.5 billion, the EU a record US$70.1 billion and India US$19.2 billion. Petroleum products, petrochemicals and steel all fell on lower prices, and cosmetics, farm and fishery products and electrical equipment all set records.

Why so much rests on memory chips

The 2025 figures show how narrow the base has become. Semiconductors alone earned US$173.4 billion, and monthly chip exports set new highs for nine months running from April, on demand from AI data centres and higher memory prices. The Economy of South Korea article puts semiconductors and other AI-related equipment at around 40% of total exports, exports at 46% of GDP and household consumption at about 40%.

Since the Hyundai and LG chip businesses merged, the country's memory makers have been Samsung Electronics and SK Hynix. Samsung took the lead in DRAM market share in 1992; SK Hynix, a supplier of high-bandwidth memory to Nvidia, overtook it in memory output in 2025, and in June 2026 overtook it in stock-market value, ending more than 25 years in which Samsung had been worth more. The same article records growth increasingly concentrated in a few technology companies, while small and medium firms, which employ 60% of the workforce, grow more slowly. Freedom House adds that corruption scandals have implicated company executives as well as successive governments.

The oldest industry has almost gone. There were 374 coal mines in 1988, most producing anthracite; government programmes closed more than three hundred of them, and by 2025 a single private mine remained after the last state-run one shut.

The older industries are under strain. Steel and petrochemical exports fell in 2025 on global oversupply, rebar has faced persistent oversupply as construction declined, and in 2026 the government tightened tracking of imported steel to enforce anti-dumping tariffs. Shipbuilding has recovered on LNG carriers since 2018, and the arms industry sold to twelve countries in 2023, up from four in 2022.

How fast the economy is growing now

Slowly, on the Bank of Korea's figures. Its advance estimate of 22 January 2026 put real GDP growth at 1.0% for 2025, after 2.0% in 2024 and 1.6% in 2023, with output falling 0.3% in the final quarter. Manufacturing grew 2.0% and services 1.7%, but construction output fell 9.6% and construction investment 9.9%. Real gross domestic income grew 1.7%, faster than output.

Prices were the problem in 2022, when consumer prices rose 6.3% in July, the fastest since November 1998. Public spending has swung between restraint and expansion by government. Pandemic spending in 2020 raised the forecast debt ratio from 37.1% of GDP in 2019 to 41.2%; budget growth slowed to about 2.5% for 2025 and rose to about 8% for 2026, a budget of 728 trillion won. The Economy of South Korea article puts social spending at roughly 15.5% of GDP, with a smaller welfare state than most OECD members.

How work and money are organised

The currency is the won, issued by the Bank of Korea, established as the central bank in 1950. The working week was cut from six days to five in stages between 2004 and 2011 according to the size of the firm, public holidays were raised to 16 by 2013, and working hours were capped in 2018 alongside rapid rises in the minimum wage. South Korea has more than 20 free trade agreements; the first, signed with Chile in 2003, drew protests from farmers.

Tourism has become an export of its own. The Ministry of Culture, Sports and Tourism counted more than 18.5 million foreign visitors by 23 December 2025, a million more than in 2019, and expected the year to close above 18.7 million. It credits the Korean Wave, and Japanese arrivals alone were expected to reach 3.61 million.