South Korea is facing a tectonic change of international environment. The original advanced countries are undergoing a stagnation never seen after 1945, while the growth of China and other developing countries is offsetting it globally. South Korea benefited much from the rise of the Chinese economy, the most remarkable benefit being the trade surplus; however, it is disappearing with China’s catch-up in technological capability. The rise of China poses a challenge to the US hegemony, undermining the rule-based order and making East Asia the arena of a hegemony contest, which is most threatening to countries like South Korea. The country needs the ability to manage relationships with the great powers to cope with it, but whether it has the ability is unclear. Compared with the nineteenth century, when Korea failed to adapt to a tectonic change, the overall ability has improved remarkably, but the ability to form domestic cohesion remains the least improved.

This chapter argues that it is important to get the numbers right, to know the sources of information on international trade- and financial flows and multinational activity, And to familiarise yourself with the basics of accounting identities as this may lead you to avoid common pitfalls. We discuss the relationships between the current account and the capital and financial account of the balance of payments, as well as the information this provides on multinational activity. We review the funding options for multinational activity and provide information on the developments of the main financial flows in the world. We conclude that there is a pattern in the development of international capital mobility, which was already high at the end of the nineteenth and beginning of the twentieth century, then declined substantially in the interbellum to rise again from approximately 1980 onwards.

The national income and product accounts yield key economic aggregates and detail their component parts. Gross domestic product (GDP), the principal measure of economic activity, is arrived at through three different approaches that sum elements along different dimensions as follows: the product approach based on sector of production, the broad divisions being agriculture, industry, and services; the expenditure approach defined over consumption, investment, government, and exports net of imports; and the income approach encompassing wages, interest, rents, and profits. The expenditures approach gives rise to a basic identity equating the gap between saving and domestic investment (S-I) to the trade balance (X-M). Comparison of the economies of Emerging East Asia by GDP component brings out the region’s diversity. Historic data for Taiwan reveal systematic changes that occur in conjunction with economic development.