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This issue examines key policy themes in North Korea’s economy under Kim Jong-un.

September 30, 2025
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Enhancing Sustainable Urban Mobility in Cambodia

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KDI News What‘s Up Newsletter Vol.26

The 25th issue of the KDI What's Up newsletter is now available!

October 21, 2025
Monthly Economic Trends KDI Monthly Economic Trends 2025.10

The Korean economy continued to show weak growth in overall production, weighed by contraction in the construction sector, while weakness in consumption appears to be easing

October 16, 2025
KDI FOCUS The Role of Capital Structure in Real Estate Project Financing: Risk, Cost, and Policy Implications

A more sophisticated policy framework is required to enhance capital adequacy, address regulatory arbitrage associated with PFVs, mitigate risks in real estate project financing, and improve the overall capital structure of financial institutions

October 17, 2025
Economic Bulletin Economic Bulletin, November 2025

In August, industrial production increased, while services production, retail sales, facilities investment, and construction investment declined. In September, the number of employed persons increased and consumer price rose at a faster pace.

October 30, 2025
News 2025 G20 Global Financial Stability Conference

MOEF-KDI co-hosted the 2025 G20 Global Financial Stability Conference on September 3 (Wednesday) at The Plaza Hotel Seoul under the theme “Enhancing Financial Stability and Resilience amid Structural Changes and Uncertainty.”

September 03, 2025
KDI FOCUS Reforming the Basic Pension Eligibility Threshold

South Korea should reform its Basic Pension by linking eligibility to median income for better targeting and consider integrating it with the National Basic Livelihood Security System to ensure a minimum income for the elderly

May 29, 2025
KDI News [Call for Papers] Navigating Geoeconomic Fragmentation

The KDI Journal of Economic Policy is now inviting submissions for a conference on “Navigating Geoeconomic Fragmentation: Global Rules, Industrial Policy, and the New Architecture of Cross-border Trade and Finance” scheduled to take place in Seoul, Korea, on June 17, 2026

September 04, 2025
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Analysis on critical pending issues of the Korean economy
to enhance public understanding of the economy and provide useful policy alternatives

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Summary

KDI FOCUS The Role of Capital Structure in Real Estate Project Financing: Risk, Cost, and Policy Implications
By examining project-level data on real estate project financing (PF), I find that higher equity ratios are associated with lower overall risk and reduced project costs. This finding supports policy measures aimed at strengthening capital structures without unduly constraining PF activity. If regulatory lending limits are to be introduced, they should target only low-equity PF projects. Moreover, preferred shares should be recognized as regulatory-eligible equity capital, and the deferral of capital gains tax should be made permanent to encourage in-kind land contributions. It is equally important to address regulatory arbitrage involving Project Finance Vehicles (PFVs), which are often exploited to pursue large-scale developments with minimal capital. - The government has announced measures to expand PF equity capital, but without disclosing project-level data, there is no empirical basis to assess whether this expansion sufficiently reduces risk. - Empirical analysis finds that expanding PF equity capital lowers risks across presale, default, postdefault recovery failure, and post-completion refinancing failure. - PF capital expansion reduces construction, f inancing, and other costs, which in turn lowers total project costs. - Increases in PF equity ratios diminish contractors’ guarantee risk, reduce construction costs, and thereby lessen completion risk. - The current plan properly combines capital requirements with incentives, but specificity and effectiveness should be improved. - PF lending caps should apply only to loans on low-equity projects, not to all PF loans. - Policy incentives should extend to preferred shares as eligible PF equity capital to attract more equity investors. - The capital gains tax deferral for in-kind land contributions should be permanent. - PFVs have enabled undercapitalization in large projects, and prudential regulation and supervision on par with project REITs should be introduced in stages for PFVs to close regulatory arbitrage and strengthen the capital base.

Summary

KDI FOCUS The Role of Capital Structure in Real Estate Project Financing: Risk, Cost, and Policy Implications
By examining project-level data on real estate project financing (PF), I find that higher equity ratios are associated with lower overall risk and reduced project costs. This finding supports policy measures aimed at strengthening capital structures without unduly constraining PF activity. If regulatory lending limits are to be introduced, they should target only low-equity PF projects. Moreover, preferred shares should be recognized as regulatory-eligible equity capital, and the deferral of capital gains tax should be made permanent to encourage in-kind land contributions. It is equally important to address regulatory arbitrage involving Project Finance Vehicles (PFVs), which are often exploited to pursue large-scale developments with minimal capital.

- The government has announced measures to expand PF equity capital, but without disclosing project-level data, there is no empirical basis to assess whether this expansion sufficiently reduces risk.

- Empirical analysis finds that expanding PF equity capital lowers risks across presale, default, postdefault recovery failure, and post-completion refinancing failure.

- PF capital expansion reduces construction, f inancing, and other costs, which in turn lowers total project costs.

- Increases in PF equity ratios diminish contractors’ guarantee risk, reduce construction costs, and thereby lessen completion risk.

- The current plan properly combines capital requirements with incentives, but specificity and effectiveness should be improved.

- PF lending caps should apply only to loans on low-equity projects, not to all PF loans.

- Policy incentives should extend to preferred shares as eligible PF equity capital to attract more equity investors.

- The capital gains tax deferral for in-kind land contributions should be permanent.

- PFVs have enabled undercapitalization in large projects, and prudential regulation and supervision on par with project REITs should be introduced in stages for PFVs to close regulatory arbitrage and strengthen the capital base.

Summary

KDI FOCUS Reforming the Basic Pension Eligibility Threshold
South Korea’s Basic Pension, which currently covers 70% of its older adults, does not reflect the declining elderly poverty rate as their income and asset levels rise. To ease fiscal burdens while effectively addressing elderly poverty, its eligibility threshold should shift from a fixed share of older adults to one tied to the national median income, better targeting vulnerable older adults for support. In the long term, integrating the Basic Pension with the National Basic Livelihood Security System to establish an old-age minimum income guarantee warrants consideration.

- Currently, the Basic Pension eligibility threshold sets the bottom 70% of recognized income among older adults as recipients, failing to adequately reflect their improved financial conditions.

- In 2015, the Basic Pension eligibility threshold was 50% of the national median income, but as the financial conditions of older adults have improved, it has risen to nearly match the median income by 2025.

- This study examines examines shifting the eligibility threshold from the bottom 70% of older adults to a fixed percentage of the national median income.

- Within the elderly population, more recent birth cohorts have shown improvements in poverty levels.

- The National Pension also shows higher receipt rates and benefit amounts among later cohorts, which is expected to contribute to a decline in future elderly poverty rates.

- Considering these trends, the elderly poverty rate is expected to maintain its decline.

- The national median income (NMI) is widely used as a criterion for various public assistance programs, including the National Basic Livelihood Security System, due to its representativeness.

- This study estimates the fiscal impact of the last two scenarios: adjusting the eligibility threshold for older adults with recognized income at or below 100% of the NMI and gradually lowering it from 100% to 50% of the NMI.

- In the NMI 100% and NMI 100%→50% scenarios, the share of Basic Pension recipients is projected to decrease to 57% and 37% of the 65+ population, respectively, by 2070.

- These scenarios are projected to reduce fiscal expenditure by approximately 19% and 47%, respectively, compared to the current (baseline) trajectory by 2070.

- Linking the eligibility threshold to the NMI enables more efficient poverty alleviation among low-income older adults by utilizing fiscal savings to raise the base pension amount.

- The Basic Pension eligibility threshold should be set at 100% of the NMI and gradually adjusted to 50%, progressively narrowing the recipient base from broad social coverage to older adults in poverty.

- A unified public assistance system for older adults, integrating the National Basic Livelihood Security System and the Basic Pension, should be established in the long term.

- However, it is advisable to gradually increase the Basic Pension's base amount while carefully assessing its impact on National Pension contribution incentives.

Summary

KDI FOCUS The Ascent of K-Content: Industry Structure and Growth Drivers
Korea’s cultural content industry has seen rapid growth. Key drivers include improved content quality, a maturing digital ecosystem, and increasingly interconnected business networks. As the industry takes on a more prominent role in the national economy―generating a significant production inducement effect―policy efforts should focus on strengthening copyright protection and enforcement, advancing digital transformation among small and midsize firms, and diversifying export markets through deeper industry linkages.

- This paper analyzes the structural changes and growth trajectory of Korea’s content industry, assesses its economic impact, and identifies key drivers of firm-level growth.

- The industry composition is shifting toward digital content production and online distribution.

- Knowledge information has been the largest contributor to sales growth in the content industry.

- Content exports reached $12.45 billion in 2021, continuing a streak of record highs since data collection began.

- Rising domestic production capacity and declining reliance on foreign content have boosted net exports of K-content, contributing to a surplus in intellectual property trade.

- The content industry shows higher self-input coefficients than most service industries and even some manufacturing industries.

- The content industry has grown through close integration with the diverse industries comprising the CPND value chain.

- One unit increase in final demand in the content industry generates 1.572 units of output across all industries―64% within and 36% in other sectors.

- In 2020, the total production inducement effect of the content industry amounted to 113.7 trillion won.

- The content industry’s power dispersion index ranks 19th of 33, placing it in the mid-range.

- The content industry demonstrates aboveaverage sensitivity, highlighting the need for industrial and policy responses to external market changes.

- K-content has solidified its position in global markets through high production quality and artistic merit.

- Changes in CPND factors can also significantly influence the growth of content firms.

- Copyrights increase firm revenue by 11.6%, playing a key role in revenue generation by protecting creative works.

- Development of platforms, networks, and digital devices has also contributed significantly to growth in the content industry.

- Expanding sales channels improves market access and exposure to diverse customer segments. Overseas expansion helps broaden the consumer base and stabilize firm revenue.

- Engagements with content firms generate over twice the revenue growth compared to noncontent firms.

- Copyright acquisition and protection should be embedded across the entire support system for content firms.

- Promoting digital transformation―paired with measures to enhance adaptability―can help steer policy in a more strategic direction for small and midsize content firms.

- The government should systematically develop region-specific entry strategies through the K-Content Export Council.

Summary

KDI FOCUS Path to National Champions: Transforming Support Policies for Small- and Medium-Sized Enterprises (SMEs)
South Korea’s ‘national champion policy,’ designed to foster global enterprises, has yet to deliver measurable outcomes in sales and productivity, suggesting inefficiencies in resource allocation linked to ‘the risk of picking winners.’ Accordingly, the incentive structure of growth policies for Small- and Medium-Sized Enterprises (SMEs) needs an operational shift, moving away from conventional subsidy assistance toward a bespoke model that integrates private investment, consulting, and networks to address their business challenges collaboratively. Furthermore, in order to enhance policy accountability and effectiveness, it is crucial to consolidate support details and performance outcomes while ensuring transparency through public disclosure.

- Amid intensifying competition for technological dominance, advanced countries are stepping up the reintroduction of targeted industrial policy to concentrate support in specific industries or firms.

- Korea provides substantial subsidies to firms through its national champion policy, but studies on its effectiveness remain limited.

- This study analyzes the effectiveness of Korea’s national champion policy and offers recommendations for improvement by comparing its operational approach with those of other countries.

- Korea’s flagship national champion policy program, World Class 300, provided targeted annual subsidies to 30~56 firms selected through a government-led process.

- The declining share of high-growth firms led to a large drop in the number of firms satisfying WC300’s sales growth criterion, making it harder to identify eligible firms.

- An analysis of WC300 outcomes reveals no significant impact on sales, value-added, or productivity, suggesting that resources may have been allocated to firms misaligned with the project’s objectives.

- Korea’s national champion policy aims to foster innovation and promote exports among SMEs to drive growth and job creation.

- However, concentrating resources on less competitive firms through selective support risks undermining economic efficiency and distorting market dynamics.

- Relational support is likely more effective than transactional support for high-potential firms.

- Effective business growth support requires tailored assistance that meets the diverse needs across the growth stages of individual firms rather than focusing on a single activity.

- The time has come for Korea to shift gears in its national champion

- To enhance the effectiveness of the national champion policy, its framework―including firm selection and support measures―should transition to a private-sector-led approach.

- Enhancing policy accountability and effectiveness requires centralized management of support details and performance data alongside transparent public disclosure.

- Given the low incentives for actively restructuring government support projects, institutionalizing independent evaluations is crucial for improving future outcomes.

- New policy initiatives should operate systematic pilot programs to enhance effectiveness.

Summary

KDI FOCUS Protecting Customer Funds for Emerging Financial Products
Emerging financial products driven by innovation, such as virtual assets and simplified payment services, introduce both new conveniences and in-transaction risks to customer funds. Despite regulations on segregating customer funds already in place, full compliance by businesses with these rules is unlikely, especially with insolvency on their horizon. This paper proposes a new protection framework that bolsters the safety of new financial products and reduces funding pressures for the compensation scheme.

- New financial products emerging through innovation offer novel benefits but may also expose customers to risks in managing their funds.

- A protection system for emerging financial products can lay a strong foundation, serving as a key safety net to support reliable financial innovation.

- Customer funds for new financial products include prepaid balances, virtual asset deposits,

- P2P lending deposits, and funeral service prepayments.

- The current volume of customer funds associated with new financial products is substantial, at about 18 trillion won, and is expected to grow further, driven by advancements in digital finance and population aging.

- There have been numerous cases where businesses misappropriated customer funds for new financial products and later went bankrupt.

- Although fund segregation regulations for customer funds are in place, firms on the verge of bankruptcy are highly likely to violate them, and several other limitations persist.

- While fund segregation regulations serve a preventive function, the best of such precautions cannot eliminate all incidents, necessitating a post-incident protection system.

- In the direct protection scheme, firms pay insurance premiums in advance, and KDIC protects customers in the event of business insolvency.

- However, the direct scheme applies uniform insurance rates regardless of fund segregation in contrast to the fundamental insurance principle of premiums proportional to risk.

- In the indirect framework, firms do not pay insurance premiums, and KDIC safeguards only the funds segregated in banks in the event of bank failure.

- The indirect approach only protects segregated funds, leaving customers unprotected from violations of segregation rules, resulting in reduced protection effectiveness.

- The proposed hybrid scheme indirectly protects customer funds segregated in banks while directly safeguarding all other customer funds.

- This hybrid protection system ensures high effectiveness by safeguarding all customer funds and keeps

- insurance premium burdens low for firms and customers, as firms are incentivized to deposit most customer funds in banks.

- The hybrid protection system addresses risk transfer, in which a bank’s failure can trigger a firm’s insolvency.

- Early detection of firms facing liquidity risks is enabled by the hybrid proposal.

- KDIC’s burden under the hybrid option is not expected to be substantial.

- While the indirect protection system is easy to implement, the hybrid option requires substantial changes to the existing framework, making immediate implementation challenging.

- Recently, major developed countries have expanded the coverage of deposit insurance institutions beyond traditional deposits to include a wide range of financial and quasifinancial services, aiming to responsibly foster financial innovation.

- This study builds on such global trends to propose protection measures for customer funds in new financial products.

- The proposed protection system, with its inclusive nature, can serve as a comprehensive framework to protect and foster future innovation by capturing new financial products within its regulatory scope.

Summary

KDI FOCUS Competition Policy for Online Platforms’ Self-Preferencing Conducts
Self-preferencing by online platforms encompasses a spectrum of conduct types, all with implications for both anti-competitive and pro-competitive effects. Therefore, it is desirable to maintain the current ex-post regulatory framework, which applies the rule of reason and intervenes only when such practices are deemed to be unjust or harmful to fair competition, rather than imposing a blanket ban. However, the timeliness and efficiency of enforcement mechanisms should be improved in light of the distinct characteristics of the online environments and self-preferencing conducts.

- Online platforms are increasingly central to daily life, with some experiencing exponential growth to reach enormous scales.

- As concerns grow about the over-concentration of economic power in a small number of online platforms, discussions on improving competition policies related to market dominance have intensified.

- As major countries strengthen regulations on online platform monopolies, self-preferencing practices have become a key area of focus.

- This paper proposes directions for improving competition policy to effectively address self-preferencing practices by online platforms.

- Self-preferencing refers to the conduct of a platform favoring its own or affiliated products and services over those of competitors, arising from the platform’s dual role.

- Self-preferencing encompasses heterogeneous conduct types, so it needs to be categorized and specified for proper discipline.

- In this paper, self-preferencing is categorized into four types.

- First, preferential placement through undisclosed algorithms involves favoring a platform’s own products in search rankings or other prominent positioning.

- Second, identifiable preferential placement involves platforms pre-installing or setting their own software as default.

- Third, discriminatory access to data occurs when a platform exclusively uses non-public data to develop its own products.

- Fourth, discriminatory access to other inputs and markets arises when a platform grants preferential access to inputs and market for its own products.

- The primary impact of self-preferencing conduct on competing business users varies depending on the type, potentially reducing business opportunities, weakening innovation incentives, or lowering quality.

- As a result, price, quality, and innovation competition in adjacent markets may be stifled.

- Preferential placement also has the characteristics of exploitative abuse.

- Conversely, self-preferencing can also have positive effects, such as lowering product prices, maintaining or improving quality, reducing consumer search costs, increasing product diversity, and promoting competition and innovation.

- Self-preferencing can have both anti-competitive and pro-competitive effects, and the overall impact cannot be definitively determined.

- Self-preferencing by online platforms should be regulated appropriately.

- As overregulation may result in even greater unintended side effects, it would be desirable to apply the rule of reason to self-preferencing, regulating it only when deemed unjust.

- While the current ex-post approach for competition law enforcement does not require material changes, it is necessary to enhance its timeliness and efficiency.

- Undue strictness should be avoided in market definition and assessments of market dominance.

- For the implementation of ex-ante designation, it would be advisable to limit its scope to certain conduct types where efficiency effects are limited and enforcement is difficult.

- Explicitly banning selfpreferencing requires a clear description of the specific conducts involved.

- To mitigate enforcement challenges, it is worth considering granting competition authorities timely access to platform algorithms and data or imposing obligations on platforms to retain relevant information.

- If the burden of proof is to be shifted to businesses to ease the load on competition authorities,

- it should be limited to certain types.

- A commitment decision can be an effective tool to complement the enforcement of competition law.

Summary

KDI FOCUS Impact of Policy Incentives on Adoption of Electric Vehicles in South Korea
South Korea’s strategies for deploying battery electric vehicles (BEVs) primarily include providing purchase subsidies and expanding charging infrastructure. An empirical analysis of new vehicle registrations from 2019 to 2022 shows that investing in charging facilities is more costeffective than offering purchase incentives for increasing BEV adoption. To achieve a higher share of BEVs, a stronger policy focus on improving the charging network is necessary to stimulate overall demand for BEVs.

- Achieving the target of ‘deploying 4.5 million BEVs and FCEVs by 2030s’ requires a substantial increase in the number of these vehicles, necessitating a comprehensive review of effective policy strategies.

- While Korea has witnessed a consistent increase in the cumulative number of BEVs (and PHEVs), it still lags behind the global average.

- Recent data indicates a deceleration in the growth rate of new BEV registrations.

- Korea’s government policy support to promote the adoption of BEVs and FCEVs primarily comprises purchase subsidies and charging infrastructure installation. Fiscal spending for these measures has increased dramatically, with the related budget accounting for 25.3% of the Ministry of Environment’s total budget in 2023.

- Analysis reveals that a 10% increase in the cumulative number of chargers correlates with a 12.4% rise in new registrations, while a 10% price reduction due to subsidies results in a 15.8% increase in new registrations.

- Also, private vehicles exhibit lower elasticity in response to changes in the number of chargers and in price compared to their government and business counterparts.

- Subsidy-induced adoption accounted for about 27.4% of the 240,000 BEVs eligible for purchase subsidies in 2019~22.

- Analysis suggests that promoting BEV adoption through the expansion of charging infrastructure would be more cost-effective than offering purchase subsidies. Additionally, the direct social benefits derived from BEV subsidies generally fail to outweigh their costs, indicating current subsidy levels may be excessive.

- Future BEV deployment policies should prioritize reinforcing charging infrastructure over providing purchase subsidies. In particular, deploying enough fastchargers at key travel hubs is essential to improve convenience and facilitate long-distance travel.

Summary

KDI FOCUS Galapagos Syndrome in South Korea’s Real Estate PF, and the Need for Fundamental Structural Reform
Over the past several decades, real estate project financing (PF) has repeatedly triggered economic disturbances in Korea, with no fundamental remedies in sight until now. Project sponsors are at the heart of this issue, investing minimal equity while heavily relying on guarantees from third parties, such as construction firms, to push forward development projects entirely on debt. This financing structure is unheard of in major advanced countries. Korea needs to reform its unique PF structure by augmenting capital and reducing dependence on guarantees.

- Over several decades, real estate project financing (PF) has repeatedly destabilized the Korean economy, but fundamental improvements have not been made.

- The root cause of PF problems lies in the unique financing practice of relying almost entirely on debt, where developers invest very little equity and depend heavily on third-party guarantees.

- In Korea, the equity ratio of developers is around 3%, while in major advanced countries, it exceeds 30%.

- In major countries, land is secured with equity capital, and only construction costs are financed through loans. This approach prevents the issue of refinancing bridge loans into main PF loans, which is typical in Korea.

- In major countries, it is rare for third parties, rather than developers, to guarantee PF loans, unlike in Korea.

- The low-equity and highguarantee structure leads to more developers becoming smaller in scale and underfunded.

- The low-equity and highguarantee structure leads to poorer assessments of project feasibility, no-questions-asked investments, and increased macroeconomic volatility.

- The low-equity and highguarantee structure shifts all risks to the national economy, not developers.

- Since advanced countries base loan issuance on project feasibility and financial structure per PF principles, capital augmentation is a prerequisite for developers to obtain loans.

- However, when Korea introduced PF, the market consisted of small developers and large construction firms. This disparity led to a low-equity, high-guarantee structure, which was reinforced by the pre-sale system.

- The prudent direction would be to raise the equity ratio to the level of advanced economies and abolish third-party guarantees. To that end, Korea should introduce regulations on capital augmentation.

- While regulations to increase capital may constrain the quantity of housing supply, they are expected to improve its stability.

- Even in environments unfavorable for scaling up, some developers have started small and grown into conglomerates, while others are affiliates of large corporations.

- The pool of potential equity investors is not limited.

- Because REITs socialize development profits and are already subject to equity ratio regulations, it is desirable to revitalize their equity investments or foster their direct participation as project sponsors.

- During the transition, it is necessary to implement support policies that encourage capital increases.

- The acute lack of data on real estate PF makes it difficult to even stay current, which in turn only allows temporary measures during crises and hinders regular monitoring or early crisis detection.

- A database system should be set up to collect official statistics on financial and business information by project and company.

Summary

KDI FOCUS Women’s Career Interruptions and the Declining Fertility Rate in South Korea
In South Korea, more women are postponing or forgoing childbirth due to concerns about career interruption. Their conscious decision to refrain from motherhood is estimated to be responsible for about 40% of the decrease in the fertility rate. In the face of the world’s lowest fertility rate, Korea needs to overhaul its policies to better support work-life balance, enabling parents to maintain their careers while raising children.

- Traditional economic theory explains the decline in fertility rates as a result of the increase in women’s opportunity costs.

- Since the 2000s, a positive correlation between women’s labor force participation rates, income, and fertility rates has been commonly observed in high-income countries, which appears to be closely associated with the extent to which women (mothers) can balance work and family life.

- South Korea’s low fertility rate may have stemmed from the disproportionate burden of childcare on women, combined with the persistent difficulty in balancing work and family life, leading women to postpone or forgo childbirth.

- If the presence of children significantly affects women’s probability of career interruption, the number of women who forgo childbirth while maintaining their careers due to these concerns may increase.

- If young women choose to have children, their probability of career interruption increases by about 14%p, leading to a higher likelihood of experiencing a substantial level of economic loss throughout their lifetime.

- Since the mid-2010s, Korea’s total fertility rate has rapidly decreased, as the gap in career interruptions based on parenthood status has widened.

- Recently (2013~19), the gender employment gap has narrowed. Still, this converging trend has been limited to the young without children, ironically increasing the women’s opportunity costs for choosing to give birth. This increased child penalty is estimated to account for about 40% of the overall decline in the fertility rate.

- Policies aimed at preventing career interruptions for women with children are expected to contribute to raising the fertility rate by reducing the number of women who delay or forgo childbirth.

- Policies that mitigate career interruptions for women with children can increase labor supply and prevent the erosion of irrecoverable human capital, thereby not only helping to raise the fertility rate but also promoting macroeconomic growth.