Measures of Economic Growth of South Korea

Running Head: Measures of Economic Growth of South Korea
EAST ASIAN ECONOMIES

Measures of Economic Growth of South Korea 1
Question 1:
As per the report issued by Commission on the Measurement of Economic Performance and
Social Progress in 2009, Gross Domestic Product Per Capita cannot be regarded the only
indicator of country’s economic performance and its social progress due to certain limitations
possessed by the same. In order to reflect the structural changes in the modern economies,
conventional measurement concept of economic activity must be adopted. A major limitation
of GDP revolves around the point that it merely takes into account the quantitative aspect of
production as well as consumption activities and it does not consider the qualitative element.
This fact leads GDP being a flawed indicator of country’s progress. This feature of GDP
results into inaccurate representation of economy’s progress and ultimately results in the poor
policy decisions.
There are numerous alternative ways of measuring the progress have been identified such as
Measure of Economic Welfare (MEW), the Index of Sustainable Economic Welfare (ISEW)
and the Genuine Progress Indicator (GPI). All these indicators are designed in such a way
that they have the potential to reflect the economic welfare associated with economic
activities of an economy in a better way. Moreover, these factors take into account the
sustainability components to adjust depletion as well as pollution costs.
GDP is used to measure the country’s income and it is generally assumed that higher the
country’s GDP, greater is the standard of living of its citizens. However, it has been revealed
by the studies that material progress of a country failed to achieve rise in the social well-
being of humans of the country. From this revelation, it has become evident that GDP and
other conventional progress measures are not enough to measure the overall impact of rising
economy on its sustainable well-being.

Measures of Economic Growth of South Korea 2
However, in-spite of so many factors being in existence, GDP per capita is still a prominent
measure of living standards.
Question 2:
South Korea has experienced tremendous economic transformation which is among the
greatest transformation across the world in the last 60 years. During its initial years, the
country was an economy that was pure agriculture based. However, in 2016 it had achieved
11th highest GDP across the world due to various factors which are discussed below.
It has been identified that human capital has played an important role in attaining a strong
economic growth in South Korea. However, as per there are various factors that contributed
to the firm growth of GDP of South Korea. These factors are physical capital accumulation,
the strong expansion, financial liberalisation and the export expansion.
The other important factors that have contributed to the strong positive growth of GDP per
capita of South Korea in the recent times are:
 The capacity of the country to promptly adapt the new advanced technology: This
factor allows enterprises in South Korea to adapt and deploy upgraded technologies in
their business operations which enhances their efficiencies and ultimately the total
revenue.
 The ability to discover new opportunities for growth and development: South Korea
has invested huge time and consideration to the technological development and
innovation processes to grow and develop significantly. The innovation and
technology has played huge role in grabbing the opportunities of export

Measures of Economic Growth of South Korea 3
competitiveness which has contributed to the remarkable economic growth over the
last few decades.
 The capacity of South Korea’s entrepreneurs as well as its policy makers to easily and
quickly adjust and recover from the sudden external shocks: South Korea has an
excellent record of maintaining a macroeconomic stability since last few decades. In
late 1990s the economy of the country had to face major most financial market crisis
of Asia. However, the economic reforms that were introduced in the country in
response to such economic disaster have made the country more resilient to regional
as well as global shocks.
 The maintenance of income distribution system which is relatively equitable has
contributed to the high growth rate of GDP of the country.
Question 2 b:
The above discussed factors are likely to improve the well-being of humans but not in all the
aspects. Although GDP per capita is observed as rising at a firm rate but yet there is a
divergence in GDP (averaging 5.8 %) and GDI (averaging 3.3 %) of South Korea. It could be
said that GDP per capita is indicating the continuing development in the economic activities
but the citizens of South Korea are not experiencing a sound well-being and this could be
analysed by taking into account various social or environmental factors of the country. After
the financial crisis, there has been reported a constant increase in the problem of income
inequality and also there has been stagnation in the welfare capital of the country along with
huge public debt (Federal Reserve Bank of St. Louis, 2018). All these factors are clearly
showing that the growth in GDP due to the above discussed factors in question 2 (a) are not
reflecting the betterment of the human well-being of the country. Rather, the rise in GDP
might overstate the true level of human well-being of the nation. The ever increasing
divergence of GDP and GPI after the financial crisis of year 1997 clearly reveals that the