A Historic Economic Shift in East Asia
For the first time in over two decades, Taiwan has overtaken South Korea in gross domestic product (GDP) per capita, a significant shift in the economic hierarchy of East Asia. This reversal comes as South Korea grapples with a sluggish economy and a weakening currency, while Taiwan rides a powerful wave of growth driven by its semiconductor industry and the global artificial intelligence boom. The development marks the end of a 22-year period where South Korea consistently held the economic advantage over its island neighbor.
According to data from South Korea’s Ministry of Economy and Finance and the Bank of Korea, the country’s dollar-denominated nominal GDP for 2025 is projected to reach $1.87 trillion, representing a 0.5 percent contraction from the previous year. Consequently, South Korea’s per capita GDP is estimated at $36,107, a decline of $116 from 2024. In contrast, Taiwan’s statistics agency projects its per capita GDP will reach $38,748 in 2025. This gap places Taiwan ahead of South Korea for the first time since 2003.
The International Monetary Fund (IMF) corroborates this shift in its World Economic Outlook report. The IMF projects that South Korea’s global ranking in per capita GDP will fall from 34th in 2024 to 37th in 2025, while Taiwan will rise from 38th to 35th. This change is not merely a statistical blip but reflects deeper structural differences in how the two economies are performing in the current global environment.
The Drivers Behind the Divergence
The primary factors contributing to this reversal are starkly different trajectories in export performance and currency valuation. While both nations are major exporters, Taiwan has recently outpaced South Korea significantly in export growth, largely due to its dominance in the semiconductor foundry market. This sector has become the backbone of Taiwan’s economic surge.
Taiwan’s exports totaled a record $640.7 billion in the last year, a massive 34.9 percent increase from the previous year. Although South Korea also posted a record high in exports at $709.7 billion, the rate of growth was far more modest. Taiwan’s exports grew by $165.8 billion compared to South Korea’s $26.1 billion increase. This means Taiwan’s export value has grown to 90.3 percent of South Korea’s, up from 69.5 percent in just one year. Given that Taiwan’s overall economy is about half the size of South Korea’s, this export intensity is a powerful driver of its per capita wealth.
The Semiconductor and AI Boom
At the heart of Taiwan’s success is its semiconductor industry, led by Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker. The global rush to develop artificial intelligence (AI) services has created an insatiable demand for the advanced chips produced in Taiwan. US tech giants like Nvidia, AMD, and Amazon are pouring billions into the island, establishing research centers and data facilities to capitalize on the local tech ecosystem.
This sectoral strength has allowed Taiwan to post robust real GDP growth. Analysts forecast Taiwan’s real GDP growth to hit around 7.4 percent for 2025, fueled by the AI boom. Even with a potential slowdown in the coming year, major global investment banks expect Taiwan’s growth to average around 4 percent, significantly outstripping South Korea’s projected growth rate of roughly 2 percent.
Gordon Sun, Director of the Taiwan Institute of Economic Research, highlighted the specific advantages Taiwan has enjoyed recently. He noted that Taiwan has benefited from supply chain shifts caused by trade tensions, the acceleration of digital transformation during the pandemic, and continued expansion in demand for high-performance computing and AI.
South Korea’s Economic Challenges
While Taiwan accelerates, South Korea faces a convergence of headwinds that have dampened its economic performance. The country’s real GDP growth rate has remained below 3 percent for four consecutive years. Growth likely slowed to just 1 percent last year, marking the weakest showing since the pandemic-induced contraction in 2020.
A critical factor dragging down South Korea’s dollar-denominated GDP is the weakness of the Korean won. The average exchange rate last year weakened by 4.3 percent compared to the previous year. This currency depreciation means that even if the economy grows in local terms, its value when converted to dollars declines. While GDP measured in won rose nearly 29 percent between 2021 and the present, dollar-denominated GDP increased only 7 percent over the same period.
South Korea also faces structural issues that are harder to resolve in the short term. The country has a rapidly aging population and one of the world’s lowest fertility rates. A shrinking workforce poses a long-term threat to economic potential. Additionally, the country’s traditional strongholds in automobiles, ships, and memory chips are facing global trade volatility and technological stagnation.
Analysts also point to political uncertainties and external risks, such as tariff policies in the United States, as factors clouding the outlook for South Korean exports. The lack of rapid structural reforms to address these demographic and industrial challenges has put South Korea at a competitive disadvantage compared to Taiwan’s focused tech dynamism.
The Role of Exchange Rates
Currency valuation plays a decisive role in these rankings. While the Korean won has weakened significantly, the New Taiwan dollar has depreciated at a much slower rate compared to the Japanese yen and Korean won. This relative stability helps preserve Taiwan’s GDP value when converted to dollars. The sustained weakness of the won drives up the cost of imported raw materials for South Korea, eroding the price competitiveness of its products.
Paik Seok-hyun, an economist at Shinhan Bank, emphasized the substantial impact of the exchange rate on GDP calculations. He noted that while factors like delays in domestic consumption recovery contribute to the situation, the depreciation of the won is a major driver behind the decline in dollar-denominated GDP figures.
Looking Ahead: The Future Trajectory
Current projections suggest that the gap between Taiwan and South Korea is likely to widen in the near future. Taiwan is on track to reach the symbolic milestone of $40,000 in per capita GDP before South Korea. The National Statistics of the Republic of China projects Taiwan will hit $40,921 in 2026. By 2030, some forecasts expect Taiwan to enter the $50,000 range.
South Korea, by contrast, is expected to reach the $40,000 mark later, potentially around 2028 or later if the currency remains weak. The IMF initially forecast South Korea would reach this milestone in 2027 but has since pushed that timeline back. This delay underscores the challenges the country faces in restoring robust growth momentum.
Park Jung-woo, an economist at Nomura Securities, offered a sobering assessment of the potential growth rates. He stated that South Korea’s economic growth potential is estimated to be below 2 percent, while Taiwan’s is projected to exceed 3 percent. If these projections hold, the income gap between the two nations will continue to expand.
“The reversal in per capita GDP largely reflects the weaker won and some distortion linked to semiconductors, so it does not require an overly pessimistic interpretation. Still, Korea needs to closely examine the policy support and corporate investment strategies behind Taiwan’s recent momentum and consider how to benchmark them.”
— Joo Won, deputy director of economic research at the Hyundai Research Institute
Beyond the Numbers: Context and Nuance
While the per capita GDP rankings are a significant indicator of economic health, experts caution against viewing them as the sole measure of prosperity or living standards. GDP per capita is an average that can mask income inequality and does not account for the local cost of living or inflation.
Interestingly, despite Taiwan’s higher GDP per capita, average wages in South Korea and Japan remain higher than in Taiwan. This suggests that while Taiwan’s economy is generating immense wealth, particularly in the tech sector, the distribution of that wealth may differ. Nick Marro from the Economist Intelligence Unit pointed out that compensation levels in Taiwan are still relatively low compared to the rest of the region, which has implications for attracting and retaining international talent.
Furthermore, population size remains a decisive mathematical factor in per capita rankings. South Korea has a population of roughly 51.7 million, which is more than double Taiwan’s 23.4 million. This larger denominator places South Korea at a structural disadvantage in per capita calculations, even if its overall economy is larger in absolute terms. South Korea’s nominal GDP remains nearly twice the size of Taiwan’s in total volume.
Residents in Taiwan have also noted that the benefits of the semiconductor boom may not be evenly felt across society. Some observers point out that while the tech industry thrives, the service sector and average wages have not kept pace with inflation, leading to a sense of imbalanced development. Similarly, South Korea’s challenges are not insurmountable, and the country retains significant industrial strengths and a highly skilled workforce.
The Bottom Line
The overtaking of South Korea by Taiwan in GDP per capita is a landmark event that signals the growing importance of the semiconductor and AI sectors in the global economy. It highlights how Taiwan has leveraged its position in the tech supply chain to achieve rapid wealth accumulation. For South Korea, the shift serves as a wake-up call regarding the vulnerabilities of its current economic model and the impact of currency fluctuations.
- Taiwan has surpassed South Korea in GDP per capita for the first time since 2003, with Taiwan at approximately $38,066 and South Korea at $37,430.
- The shift is driven by Taiwan’s record semiconductor exports and booming AI sector, contrasting with South Korea’s slowing growth and weak currency.
- Taiwan’s exports grew by nearly 35 percent, significantly outpacing South Korea’s export growth.
- The Korean won depreciated by over 4 percent, reducing the dollar value of South Korea’s economic output.
- Taiwan is projected to break the $40,000 per capita GDP threshold in 2026, ahead of South Korea.
- Despite the GDP lead, average wages in South Korea remain higher than in Taiwan, indicating differences in wealth distribution.
