By Kim Da-ye
The portion of trade dependency of the economy is expected to reach as high as 85 percent this year, according to the Ministry of Strategy and Finance. The figure raises concerns that the Korean economy remains vulnerable to risks from abroad and highlights the need to revitalize the domestic market.
The dependence on international trade isn’t officially measured, but, in general, is calculated by dividing the trade volume ― exports plus imports ― by the gross domestic product (GDP). This year’s figure is 2.6 percent up from 82.4 percent in 2009.
Korea is a large exporter of electronics, ships, construction and automobiles while importing most of the raw materials necessary for such manufacturing.
Korea’s level of reliance on trade is higher than many of its counterparts in the Organization of Economic Cooperation and Development (OECD). Although this year’s figures for other countries are not yet available, the dependence rate for Japan was only 22.3 percent in 2009, compared to 18.7 percent for the U.S., China’s 45 percent, Germany’s 61.6 percent and France’s 38.7 percent.
There were only a handful of countries that exceed Korea in terms of its dependence on foreign trade: Belgium at 153 percent, Slovakia at 126 percent, Hungary at 125.2 percent, the Netherlands at 119.2 percent, Czech Republic at 114.7 percent and Luxembourg at 82.5 percent.
Korea’s reliance on exports and imports had stayed below 70 percent until 2007. The rate remained steady at 64.8 percent in 2005, 66.7 percent in 2006 and 69.4 percent in 2007, according to data from the Bank of Korea and Korea International Trade Association.
But the figure shot up to 92.3 percent in 2008 because the value of the Korean won plunged during the global financial crisis, shrinking the size of the GDP converted to U.S. dollars. Net exports decreased with high oil prices, but domestic consumption contracted, according to the finance ministry.
Back in November 2009 when the finance ministry announced the data, it said that a dependence rate between 80 and 90 percent is relatively high and it could increase economic volatility caused by external shocks.
“In order to sustain the stable growth of the economy, it is necessary to reduce the dependence on international trade through keeping the balance between exports and domestic consumption,” the ministry said in a statement, defining the high level of dependence on trade as the Korean economy’s main weakness.
Among the sectors of the domestic market, the service sector, in particular, is considered weak as the manufacturing industry is at the forefront of the export-driven growth.
In the past few years, the government has said it would ease key regulations in the high value added service sector including education, the medical industry and tourism to attract more consumption and investment. It would also reduce barriers for the entry into markets that require professional licenses.