By Kang Seung-woo
The Korean economy’s dependence on trade reached 87.9 percent last year, as its exports took a sharp increase on the back of a global economic recovery, the Ministry of Strategy and Finance said Sunday.
Trade dependence is the ratio of imports and exports against gross domestic product.
The number, up 5.5 percent from the 82.4 percent seen in 2009, is the second highest level after 92.1 percent tallied in 2008, which is the third straight year for the trade dependence to remain at over 80 percent.
Until 2007, Korea’s trade dependence never passed the 80 percent, which indicates that economic uncertainties here have grown.
The ratio logged 51.1 percent in 1990, but climbed to 65.2 percent after the Asian financial crisis in 1997 and 1998.
In the early 2000s, trade dependence remained below 60 percent but the figure rose to over 90 percent in 2008 due to sluggish exports and the won’s devaluation sparked by the bankruptcy of Lehman Brothers.
The high dependence means the economy is vulnerable to outside factors such as global contractions in demand, according to the ministry.
In comparison with other countries, Korea’s economy relies highly on trade.
Among the 34 members of the Organization for Economic Cooperation and Development (OECD), Korea came in seventh, with Belgium placing first at 214 percent, the Netherlands second at 143.2 percent and Ireland third at 109 percent based on the 2009 data, the ministry added.
The uptick in trade dependence, boosted by solid exports, contributes to economic growth, but without growth in domestic demand, people cannot benefit from the growth.
Last month, the Bank of Korea (BOK) showed in its data that the economy grew 4.2 percent in the first quarter of this year from the same period a year ago, with exports accounting for 3.1 percentage points of the growth rate. Domestic demand, meanwhile, contributed only 1.1 percentage points, falling behind exports for the first time since the third quarter of 2009.
But the gross domestic income (GDI), an indicator of the actual purchasing power, declined 0.6 percent from the previous quarter, marking the first quarterly drop in 27 months, which means that purchasing power went down despite the overall growth in production.
“Although firms were able to earn money through exports, this is not properly leading to an expansion in domestic demand,” said a Seoul-based economist.
“One key factor for the weak domestic demand is the reluctance of firms to invest due to greater uncertainties following the global economic crisis.”