Polarization deepens between exports, domestic consumption

The Strategy and Finance Ministry said Sunday that the country`s trade dependence rate reached its second-highest level of 87.9 percent last year, nearly double that of 20 years ago.

The trend suggests that polarization between exports and domestic consumption has reached an irreversibly serious level.

Trade dependence rate is the value of the export and import of goods divided by nominal GDP. A higher rate means that the portion of exports and imports relative to industries for domestic consumption is higher in the national economy.

The trade dependence rate was at the 40-percent level until the early 1990s, but rose to 52.8 percent in 1997 and 63 percent in 1998. In the wake of the global financial crisis, the rate hit a record high of 92.1 percent in 2008 due to surging import value resulting from a spike in international oil prices and foreign exchange rate.

A country with a high trade dependence rate can post high growth when the world economy enjoys a boom but stands to take a bigger hit in a global recession. Many experts say export growth not backed up by expansion of domestic consumption is undesirable.

If domestic consumption slumps, the number of jobs in the domestic market declines while the service industry, which is closely linked to the people`s livelihood, contracts. As a result, the benefits of economic growth spread unevenly to different people.

Korea’s trade dependence rate is the world`s seventh highest after those of Belgium (214 percent), the Netherlands (143.2 percent), Ireland (109 percent) and Luxembourg (98 percent) among members of the Organization for Economic Cooperation and Development.

For Korea to expand domestic consumption, it must continue to promote the service industry. Yu Byeong-gyu, chief of economic research at Hyundai Research Institute, said, “Just as the Korean government has cultivated export industries thus far, it should ease regulations on the service industry, including medical, finance and information technology, to galvanize domestic consumption.”