South Korean rapper PSY, who sings the popular "Gangnam Style" song, speaks to the media during a press conference in Seoul, South Korea, Tuesday, Sept. 25, 2012. (Lee Jin-man/AP)

Psy, a portly 34-year-old rapper with a penchant for silly dances, brought central Seoul to a standstill last week as he gave a free concert for 80,000 adoring fans, including two renditions of his global hit “Gangnam Style.”

The municipal authorities willingly allowed the concert to take place outside the city hall and blocked traffic from the surrounding streets, an unusual gesture that reflects the delight of South Korean public officials at the international success of the musician, whose real name is Park Jae-sang.

“Gangnam Style” has become South Korea’s biggest musical export: It stands at No. 2 on both the U.S. and British charts, and its video has been watched on YouTube more than 406 million times.

The phenomenon is particularly welcome for an outgoing government that has paid enormous attention to boosting South Korea’s standing in the eyes of the world. Since assuming the presidency in 2008, Lee Myung-bak has stressed the importance of developing the country’s “soft power” to a level befitting its economic heft. He created a permanent presidential council to “establish a national brand,” has increased spending on foreign aid and hosted a series of high-profile events, including a Group of 20 summit in 2010.

A viral pop hit was not part of the nation branding plan, but it is “very useful, very important,” says Ma Young-sam, ambassador for public diplomacy at the Foreign Ministry.

Psy’s hit is the latest triumph for what has become known as the Hallyu, or “Korean wave.” Girls’ Generation, a nine-member “K-pop” group, has made inroads in the United States with appearances at New York’s Madison Square Garden and on “Late Night With David Letterman.” Last month, “Pieta” became the first Korean film to win the top prize at the Venice Film Festival, and Shin Kyung-sook’s novel “Please Look After Mother” became a global bestseller this year.

“As foreigners pay more attention to the singers, slowly they develop a liking for Korea . . . and if they like Korea, they will buy more Korean things. This is what we’re trying to promote,” Ma says.

Big manufacturers are strongly represented on the presidential council on nation branding, and many have a deep interest in its goal. Once known principally for such prosaic products as steel and cargo ships, South Korean companies are focusing increasingly on areas where a glamorous image is critical.

Samsung Electronics is in a two-way battle with Apple at the top end of the smartphone market, and it sold up to 20 million units of its Galaxy SIII phone in the past three months, analysts estimate. Hyundai is slowly working its way up the automotive value chain; one company insider says it is beginning to see its premium models as competitors to Audi and BMW.

For some companies, the benefits are even more obvious. Amore Pacific, South Korea’s biggest cosmetics producer, is enjoying double-digit growth in China, where the “made in Korea” brand commands premium prices. Kim Bong-hwan, executive director of the company, says this is largely to do with the huge Chinese following for Korean music and television stars.

Jang Te-you, a producer of some of the most popular TV shows, attributes their popularity in other Asian countries to their mixing of conservative family values with depictions of sophisticated fashion and urban living, a blend well suited to Russia, South America and other new markets, he says.

But some contend that broader social and economic problems are holding back the country’s creative industries. In a society where academic success is exceptionally highly prized, with some 80 percent of young people going to a university, this is “a waste of time” for creative talents who miss an opportunity to develop their skills, according to Kim Ki-duk, director of “Pieta.”

Like many other sectors in South Korea, the film industry is dominated by the vast chaebol conglomerates, making it difficult for independent filmmakers to obtain funding or persuade cinemas to screen their films, Kim adds. “The whole filmmaking process, from production through distribution to sales, is dominated by the chaebol, which discourages fair competition:

But Korea’s turbulent history has given its arts a “dynamic power” that explain their growing popularity, says Shin, the author of “Please Look After Mother,” which tells the story of an elderly rural woman who goes missing in 1970s Seoul, then at the height of its industrial boom.

“Korea doesn’t have abundant natural resources to use to grow the economy,” she says. “If you look into Korea closely, it has nothing to be proud of but Korean people.”

Laeticia Ock contributed to this report.