Economies of Japan and South Research Paper

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This has helped to protect the economy against sudden shocks from different events.

The government policies that are supporting growth are designed to encourage foreign direct investment in the South Korean economy. What happened was the Asian financial crisis (in 1997), underscored how government officials needed to open their economy up to foreign investors. As a result, the total amounts of money that was coming in began to increase dramatically with these figures currently sitting at $115.6 billion dollars. This is a part of an effort to diversify the economy away from the manufacturing sector. Over the course of time, this has allowed South Korea to build up their infrastructure and improve personal income with this coming in at $30,000.00 per year. This is significant, because in the early 1970's the average South Korean earned $1,200.00 per year. ("South Korea")

The different policies that were enacted have meant that the South Korean government is now running a large budget surplus. This is because the tremendous amounts of growth and economic assistance have helped the country to experiencing a positive balance of trade. Where, the government realized a $35 billion trade surplus last year. Over the course of time, this has allowed them to provide the public with more services and to focus on how to diversify the economy. These different strengths are significant, because they have helped South Korea to become an economic powerhouse in Asia. ("South Korea")

As far as the weaknesses are concerned, South Korea is dealing with a number of challenges that could have an impact on economic growth in the future. A few of the most notable issues that they are dealing with include: an aging population, an inflexible labor market and a dependence upon the manufacturing sector for economic growth. The aging population is problematic, because this can have an adverse impact on economic growth by causing productivity to decline. Evidence of this can be seen by looking at the below table (which is illustrating the majority of the population is classified as a part of the 15 to 64 years old age bracket). As, the median age is: 37 years old for males and 39.8 for females. ("South Korea")

Age Demographics of South Korea

Age

Percentage

0 -- 14

15.7%

15 -- 64

72.9%

65 and over

11.4%

("South Korea")

These figures are significant, because they are showing how over the next 30 to 40 years South Korea will have the majority of their population classified as over 65 years old. This is troubling, because this means that there could be labor shortages, which will lead to a decline in productivity and the standard of living. ("South Korea")

An inflexible labor market is a major issue that will have an impact on future economic growth. The reason why, is because there are certain policies that are giving executives less control in adjusting to changing economic conditions. What has been happening is the South Korean government, has restriction on how and when layoffs will be conducted. This is troubling, because it prevents firms from having large scale layoffs when they seeing decreases in demand. Over the course of time, this will have an adverse effect on the ability of executives to react to a host of situations (which is giving them a competitive disadvantage). (Chung 715 -- 209)

Moreover, there have also been frequent labor slowdown and work stopages. This is because there have been disputes between executives and employees on a host of issues.

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A few of the most notable include: pay, working hours, conditions and added compensation. These issues are troubling, because they are sign that the labor market could create a number of problems for South Korea in future. As, executives are concerned about how: they can be able to increase productivity and keep labor costs low. Over the course of time, this creates a situation where foreign direct investment capital will decline. This is the point that the economy could face the possibility a major slowdown that will last for several years. (Chung 715 -- 209)

The over dependence on the manufacturing sector is problematic, because if there is a worldwide slowdown with all of their trading partners. This could have an adverse impact on economic growth. As the manufacturing sector could easily fall into a recession and drag the other areas of the economy down with it. Evidence of this can be seen by looking at the below table, which is highlighting the percentage of each sector that is contributing to economic growth. (Chung 715 -- 209)

Contributors of Economic Growth for the South Korean Economy

Sector

Percentage

Agriculture

2.6%

Manufacturing

58.2%

Services

39.3%

("South Korea")

These different figures are significant, because they are showing how the economy is overly concentrated in the manufacturing sector. Over the course of time, this exposing South Korea to sudden changes in demand from their trading partners.

Conclusion

When you step back and compare Japan with South Korea, it is clear that they are facing similar challenges. The reason why, is because they have been following similar approaches when it comes to economic growth. At the same time, shifts are taking place in these countries themselves that will have an impact on investor confidence and sentiment. As far as a Japan is concerned, the various challenges that they are facing include: huge amounts of government debt, deflation and an aging population. This is because, the country experienced unprecedented amounts of economic growth from the 1960 until the early 1990's. At which point, the economy started to slow and the government was ineffective at improving confidence among consumers and business executives. Once this occurred, it meant that the nation would experience tremendous amounts of deflation and low levels of economic growth. To make matters worse, there will be significant labor shortage because of the aging population. These elements are important, because they are showing how Japan needs to take steps that can allow them to provide consistent economic growth.

As far as South Korea is concerned, they are dealing with a number of different challenges. These include: an aging population, an inflexible labor market and a dependence upon the manufacturing sector for economic growth. These factors are important, because they are showing how the country could face a number of issues that will an impact on productivity and the standard of living. Once this occurs, there is a very realistic possibility that South Korea could be going through a similar situation as Japan in the future.

Therefore, government officials need to take steps to address these challenges through: having economic policies that will support immigration and instilling a sense of confidence among consumers / businesses. If this were to occur, it will help both countries to adapt to these challenges. This will allow their economies to provide everyone with consistent amounts of economic growth. These elements are important, because they.....

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