South Korea remained quite poor and agricultural until the 1970s, when it began to industrialize in earnest. By 1988, when Seoul hosted the Summer Olympics, Korea had been transformed into a modern, primarily urban, industrialized nation. The government of Korea, under the leadership of General Park Jung-Hee, who was in power from 1960 until his assassination in 1979, is widely viewed as the architect of Korea's economic development. Technology transfers from Japan (part of its war reparations to Korea), and financial assistance from the U.S., were big factors in economic growth in the 1950s and 60s. During Japanese rule (1905-1945), the northern part of the Korean peninsula was more industrialized than the south. In fact, until the late 1960s, North Korea was actually better off than it's mainly agricultural southern neighbor. This made the industrialization of the south a greater feat than the industrialization of the whole peninsula would have been had Korea remained united.

South Korean economic development has followed the Japanese model of huge conglomerates, making everything from toothpaste to apartment towers and cars, being encouraged by government and banks, and coming to dominate the economy. Although the big conglomerates (called jaebol in Korean) are still omnipresent, smaller and medium-sized businesses have begun to take a larger share of economic activity in recent years. Labor-force mobility has increased considerably over the past few years and younger Koreans are getting used to the idea of working for more than one company during their lifetimes.

Since the 1980s, manufacturing has diversified from its original base of heavy machinery, cars, and ships, to electronics and high-tech products. Services are also becoming a more important part of the economy. Korea's trading relationships have also evolved from trade being almost completely dependent on the U.S. to China, Japan, Canada, Europe, and other parts of Asia becoming much more important. China is now South Korea's main trading partner, though the U.S. remains the largest market for Korean exports.

The Asian economic crisis of 1997 led to a liberalization of the economy and exposed economic mismanagement at high levels. Korea dealt swiftly with these problems and recovered more quickly and completely than any other Asian country affected. Hong Kong and Singapore aside, the Korean economy is now the most liberalized in East Asia. In contrast, no sudden economic shock has forced Japan to deal with the same issues that troubled Korea in the 1990s. As a result, the Japanese economy has remained flat for the past decade and, with every passing year, the Japanese economic model is becoming more and more dysfunctional.

Recently, China displaced the United States as South Korea's number one trading partner. South Korea has a sizeable trade surplus with both China and the U.S.; however, it imports more than twice as much as it exports to its third most important trading partner, Japan.

Over the past five years, the Korean economy has grown at an average of about 6% per year. Inflation for 2004 was 3.6%. The won has been trading in a stable range since late 1998. Korea has amassed sizeable foreign reserves (over US$200 billion) over the past few years in order to defend the currency against speculation and subsequent artificial devaluation. The Korean won floats entirely freely; it is not artificially pegged, or controlled by government, like the Japanese Yen, The Chinese RMB, or the Hong Kong Dollar. This means that while it fluctuates in value, it is not subject to "currency crises" that artificially valued currencies risk. Recently, the U.S. dollar has lost considerable value against many currencies, including the Korean won. Rates are currently as high as they have been, in favor of the won (and thus salaries paid in won), at any time in the past seven years.

The chart below, from The Economist gives some recent economic data for South Korea.

Update:  Since 2002, Korea has continued to grow faster than North America or Europe:  GDP % change on previous year:  2003 (3.1%), 2004 (4.6%), 2005 (4.0%), 2006 (5.0%).