Why is South Korea classified as an Emerging Market economy?

Question

I have recently found out that South Korea is part of the MSCI Emerging Markets Index, and that the South Korean Won (KRW) currency trades as a non-deliverable currency. Furthermore, the South Korean Interest Rate Swaps are also non-deliverable and trade with a relatively wide spread, signalling poor liquidity.

This came as a total surprise, because when I used to think of South Korea, I used to think of companies such as Samsung, Kia, Hyundai or LG (i.e. globally competitive, tech-savvy corporations). Also, the South Korean capital Seoul came to mind, which somehow has an image of a modern, western-type capital city.

For many years, I somehow had a mental image of South Korea as a tech-savvy country, along the lines of Japan, and certainly a developed economy.

As I am no expert on Asia and do lack deeper economic education, I wanted to ask for an economic explanation as to why South Korea is still an emerging economy, and also, what are the country's prospects of becoming a developed economy?

Thank you so much for any type of explanation, including perhaps a historical one which would explain why South Korea is economically where it is today.

Answer 1

Economists already consider South Korea to be developed economy. In fact some scholars already argued that Korea was a developed economy already sometime in late 90s - 2000s (see Kim, 1988; Kim, 2011). Opinions might differ because there is no precise definition of what developed country is but quite often in literature this is proxied with whether economy reached high income status and South Korea already did that by World Bank definition some time ago.

MSCI index has its own classification that does not necessary reflect what economists think about the country. MSCI is a private company and they create their own classification in order to help people who invest to decide how to invest. The MSCI classification framework can be seen here. The classification is based on economic performance but really the numbers and thresholds are all arbitrary and do not even refer to economic literature or literature on economic development. For example, other indexes such as Financial Times Stock Exchange (FTSE) index already reclassified South Korea as a developed country as you can read here.

You should not take classification by different indexes too seriously, or give them too much weight, they do not necessarily reflect economic literature. If you would start your own private company doing the same business as MSCI you could decide to classify even Maldives as developed country or USA as a developing one. This being said the indexes do this to help to guide their investors so they will try not to do it completely without any thought (and go to such extreme as I suggested in the previous sentence) but in the end it is their private decision, and different indexes will decide differently.