| Year | Quarter | Exports (trillion KRW) | Won Exchange Rate Index (Base: 2020 Q1 = 100) |
|---|---|---|---|
| 2020 | Q1 | 160 | 100 |
| 2020 | Q3 | 152 | 96 |
| 2021 | Q1 | 145 | 93 |
| 2021 | Q3 | 158 | 91 |
| 2022 | Q1 | 165 | 88 |
| 2022 | Q3 | 170 | 85 |
| 2023 | Q1 | 175 | 83 |
| 2023 | Q3 | 182 | 82 |
| 2024 | Q1 | 188 | 80 |
Since the global disruptions of 2020, South Korea's exchange rate has steadily depreciated, with the Won Effective Exchange Rate Index falling from 100 in early 2020 to 80 by Q1 2024. Theoretically, a weaker currency enhances price competitiveness, boosting export demand in high-tech markets like semiconductors and automobiles.
However, South Korean conglomerates (chaebols) have faced rising global energy prices and supply chain realignments, increasing the cost of raw lithium, silicon wafers, and petrochemical inputs, which are heavily imported. Furthermore, domestic real wages have stagnated, and productivity growth in non-manufacturing sectors has lagged behind competitors, limiting the real volume growth of exports. Much of the rise in nominal export values to 188 trillion KRW in Q1 2024 has been driven by price inflation rather than a physical expansion in volume.
Recent trade data has raised concerns over whether South Korea can rely on net trade as the primary engine for economic growth. While South Korea has historically run a structural trade surplus in goods (led by memory chips and vehicles), its service sector—particularly tourism, shipping, and professional services—frequently runs a deficit, dragging down net exports. In late 2023, the goods trade surplus narrowed significantly due to high import bills for liquefied natural gas (LNG) and crude oil.
Extract F (lines 11–12) states that 'sluggish global growth and rising geopolitical tensions cast doubt over the capacity of external trade to secure a sustained recovery in the Korean economy'. With high household debt squeezing domestic consumption, the government is looking to export-led growth to offset weak domestic demand, but global protectionism and semiconductor inventory cycles pose major challenges.
Using the data and your economic knowledge, evaluate the extent to which export-led growth can be relied upon to secure a sustained recovery in the South Korean economy.
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.