KDI Korea Development Institute

Summary

Other Research KOR Whole-of-Government Coordination in ODA: Comparative Cases of Donor Countries

Amid rapidly changing global conditions, complex and interconnected challenges have become increasingly prominent, highlighting the importance of whole-of-government approaches in international development cooperation. The significance of such approaches is reflected in the OECD DAC peer review framework, which assesses whether member countries have coherent and coordinated government-level systems for effective development and humanitarian assistance. Key evaluation criteria include leadership, accountability, complementarity, and inter-agency responsibilities.

Implementing whole-of-government approaches in practice presents multiple challenges. While global issues such as supply chains, climate change, health, and food security emphasize the need for coordinated action, the specialized expertise of individual ministries has become increasingly important. Whole-of-government coordination requires horizontal collaboration across agencies, often involving substantial costs and efforts, and raises questions about balancing individual agency accountability with collective action.

This study examines the theoretical background, concepts, and scope of whole-of-government coordination in development cooperation. It also reviews analytical criteria for evaluating coordination frameworks, focusing on legal and institutional foundations, inter-ministrial coordination mechanisms, and evaluation and performance management measures, which function as unintended, indirect coordination tools. Using these criteria, the study compares the development cooperation systems of selected donor countries, including Japan, France, the United Kingdom, Germany, and Spain, to explore how whole-of-government coordination is structured and implemented.

The research provides a foundation for understanding the design and assessment of government-wide coordination mechanisms in development cooperation, contributing to the discussion on policy coherence, accountability, and effectiveness in international development policy.

Summary

Research Monograph KOR Korean Real Estate Project Finance: Structure, Problems, and Policy Recommendations

Since the 2022 Legoland crisis, real estate Project Finance (PF) has emerged as a significant risk factor for the entire South Korean economy, particularly within the financial and construction sectors. These crises are not isolated events but a phenomenon that recurs roughly every decade; for instance, the massive savings bank run of 2011 was also primarily driven by non-performing PF loans. The study addresses a set of fundamental questions: What are the root causes of these recurring PF crises, and how can they be resolved? What policy measures are available, what are their projected economic effects, and what are the key points of contention considering global precedents and Korea's unique institutional and industrial context? By conducting comprehensive institutional and empirical research, the study proposes structural improvements for real estate PF in Korea.
The study is organized into four chapters.

Chapter 1 explains the structure of real estate PF, diagnosing the "low-capital, high-guarantee" structure as the primary cause of these recurring crises, and discusses various policy measures to reform this structure. In major advanced economies, developers typically raise 20-40% of the total project cost as equity, but Korea's equity ratio stands at a mere 3%. Consequently, financial institutions rely on completion or payment guarantees from construction companies instead of rigorous project feasibility assessments. This chapter argues that this structure transfers risk to the entire society by encouraging reckless investment and system-wide instability. It then discusses policy recommendations such as tax deferrals on land contributions in kind to encourage equity expansion. Other related issues are examined, including equity loans―where developers borrow cash to fund their equity contribution―which critics argue can nullify the effect of equity increases. Policymakers may need to determine what constitutes qualified equity and what does not.

Drawing on a proprietary dataset of approximately 800 PF sites evaluated between 2013 and January 2025, Chapter 2 provides an in-depth empirical analysis of how low equity affects the soundness of PF projects. The analysis reveals that higher equity ratios significantly reduce pre-sale, financial, and construction risks. Furthermore, it demonstrates that higher equity ratios lead to lower total project costs, specifically in construction, financial, and miscellaneous expenses, suggesting that resolving the low-capital structure can improve both the stability of projects and the affordability of housing supply.

Chapter 3 complements the preceding chapter by analyzing site-specific PF data from the United States (via MSCI) to examine the relationship between financial structure and final project performance. The findings indicate that: (1) higher Loan-to-Value (LTV) ratios increase the probability of default; (2) higher LTV ratios reduce the likelihood of recovery after a default occurs; and (3) higher LTV ratios hinder post-completion transactions, such as refinancing into permanent loans or successful divestment (exit). Taken together, these results underscore that high debt dependency creates multifaceted risks throughout the project lifecycle.

Chapter 4 employs a Dynamic Stochastic General Equilibrium (DSGE) model to analyze the macroeconomic implications of PF regulatory changes. The model reflects Korea's unique "finance-real economy cross-structure," where non-bank financial institutions (NBFIs) provide about 70% of PF loans due to regulatory asymmetries. The analysis shows that while temporary tightening of capital requirements primarily causes credit reallocation between institutions, a permanent increase in NBFI capital requirements leads to long-term benefits. Although it may cause a temporary dip in housing supply, the accumulation of capital eventually improves credit supply capacity, leading to increased housing stock, stabilized prices, and higher total national output. In contrast, "cost-based" regulations that impose continuous costs on leverage were found to suppress credit supply and reduce aggregate production in both the short and long term.

Summary

Policy Study KOR Analysis of Commuting Efficiency based on Urban Spatial Development and Transport Infrastructure Supply Policies

Commuting, which bridges residences and workplaces, is a fundamental trip that supports daily life and economic activities, while maintaining close ties to labor market accessibility, productivity, and social quality of life. The government has made continuous efforts to reduce commuting distances and times by alleviating the spatial imbalance between residential and employment facilities and expanding the housing supply for diverse social classes near job-dense areas.

The purpose of this study is to empirically analyze the impact of urban spatial development and transport infrastructure supply policies on commuting efficiency. To this end, we established commuting efficiency indicators―including average and external commute times, external commute ratios, and car usage rates for external commutes―at the level of cities (si), counties (gun), and districts (gu) (hereafter si-gun-gu). By constructing a staggered Difference-in-Differences (DiD) model that accounts for the varying implementation timelines of urban development and rail projects across different regions, this research analyzes the heterogeneity of commuting efficiency improvements according to the timing of development and supply.

Based on the staggered DiD model, which considers the interaction effects between rail and housing land supply, the results reveal that despite the steady expansion of physical infrastructure―such as urban development, transport expansion, and public transit improvements―over the past 20 years, the actual effects on improving commuting efficiency have been limited. The average commute time across nationwide si-gun-gu slightly increased from 23.02 minutes in 2000 to 24.18 minutes in 2020. Furthermore, the car usage rate for external commutes across these si-gun-gu regions rose significantly from 54.61% to 69.69%, and the external commuting ratio also saw a slight increase from 23.18% to 24.75% during the same period.

The empirical findings suggest that to enhance commuting efficiency in the future, a policy shift is required: moving away from the traditional focus on expanding transport and land supply toward Transportation Demand Management (TDM) and the refinement of urban spatial structures. Specifically, car demand management policies―such as congestion charging, adjusting parking fees to realistic levels, and expanding bus-only lanes―should be strengthened. Concurrently, public transit service quality, including fare systems, transfer convenience, accessibility, and reliability, must be improved to actively encourage transit use. Additionally, strategies to distribute transport demand through mixed-use urban developments that promote jobs-housing proximity are essential.

Furthermore, to improve commuting efficiency, policies should focus on creating polycentric urban structures to alleviate commute concentration in specific areas, establishing walkable and bikeable communities through mixed-use development, and strengthening jobs-housing proximity via Transit-Oriented Development (TOD). Moreover, "soft" policies such as telecommuting, flexible work hours, decentralized office spaces, and staggered commuting should be implemented in parallel to reduce the necessity of travel or mitigate peak-hour congestion.

Commuting efficiency cannot be improved solely by the supply of land and transport facilities. This is because commute times are influenced by a complex interplay of factors, including induced demand, jobs-housing imbalances, and individual mobility behaviors. Therefore, the policy focus must shift fundamentally toward improving spatial accessibility between housing and employment opportunities, prioritizing demand management and structural urban improvements over simple infrastructure expansion.

Summary

Policy Study KOR A Study on the Economic Impact of Foreign Worker Inflows and Determinants of Migration Decisions

Korea’s declining potential growth due to demographic change has elevated immigration policy as a central economic strategy, yet effective design is hindered by limited evidence on labor-market impacts and growing reliance on non-employment residence statuses that still permit work.

Traditional employment-visa-based forecasting no longer captures the true scale or composition of foreign labor.

This study addresses this gap by providing rigorous evidence on how foreign worker inflows affect labor-market outcomes and by identifying key determinants of migrants’ decisions to move to Korea.

Using a causal framework with shift-share instruments for 229 municipalities (2016-2023), the study shows that an increase in employment-visa foreign inflows raises natives’ days worked slightly but substantially reduces foreign workers’ days worked and incomes.

Income effects on natives are, on average, statistically insignificant, while foreign workers’ incomes decline markedly, indicating strong substitution and competition among foreign workers and more pronounced adverse effects for foreigners than for natives.

The effects vary by period and visa type.

In the post-COVID-19 period, inflows under employment visas reduced native incomes, and the adverse income effects become more pronounced when non-employment visa holders (e.g., overseas Koreans, international students, and permanent residents) are included.

These findings underscore that mismeasurement of labor inflows ― particularly the exclusion of non-employment statuses ― can bias impact estimates and lead to misguided policy conclusions.

Beyond labor outcomes, the analysis documents migration determinants ― income, finance, and migration costs ― showing a consistent native income premium, limited financial inclusion for foreigners reliant on high-interest loans, and high migration costs relative to expected income, especially under short-term stay regimes.

Taken together, the findings indicate that immigration policy in Korea should move away from a narrow, employment-visa-centered approach and toward an integrated framework that explicitly accounts for all labor-supplying residence statuses and their heterogeneous effects over time and space.

These patterns underscore the necessity of evidence-based visa quota setting, careful monitoring of regional and sectoral impacts, and policy instruments that prevent unintended harm to vulnerable groups.

By grounding immigration policy in precise measurement and causal analysis rather than aggregate labor-shortage narratives, Korea can better align foreign labor utilization with sustainable growth and labor-market stability.

Summary

Policy Study KOR Intergenerational Mobilty in Korea: Insights from Educational Mobilty

This study examines intergenerational educational mobility in South Korea to provide a comprehensive analysis of social mobility and its underlying factors. By assessing both absolute and relative educational mobility, the study aims to highlight disparities in access to higher education and the influence of parental background. The findings indicate that while South Korea exhibits high intergenerational educational mobility, the trend of upward mobility has weakened in recent birth cohorts, with parental education and income playing a growing role in shaping children’s educational outcomes. In particular, the analysis reveals that income disparities increasingly translate into differences in access to top-tier universities, reinforcing intergenerational inequality. Moreover, structural changes, such as rising university enrollment rates, necessitate a nuanced approach to measuring educational mobility. To enhance equal opportunities, policy efforts should focus on expanding educational access for disadvantaged groups and preventing income inequality from perpetuating educational disparities. Reforming university admissions to incorporate diverse selection criteria beyond standardized test scores can help ensure that academic achievement is determined by individual ability and effort rather than socioeconomic background.

Summary

Policy Study KOR Evaluating the Impact of Government Policy in the Pharmaceutical Sector: Analysis and Key Implications

This paper examines the effects of Korea’s government-sponsored Fund of Funds, a form of indirect public equity support, on innovation outcomes and capital formation among domestic biotech ventures. We combine firm-level data on venture investment, financial statements, and patents for the period 2000 to 2023 and use a event-study design and a difference-in-differences framework to identify the effects of venture capital backed by the government-sponsored Fund of Funds relative to non-Fund-of-Funds venture capital.

This paper reports that Fund-of-Funds investment is positively associated with innovation and initial public offerings among technologically linked biotech firms, where technological linkages are measured using patent citation networks. The results further suggest that the Fund of Funds is associated with crowding in, rather than crowding out, subsequent private capital, with particularly strong effects among early-stage firms younger than seven years. I also find a positive association with private investment in technologically connected firms. These findings suggest that Fund-of-Funds investment can serve as an effective policy tool for strengthening the dynamism of the innovation ecosystem.

Finally, I discuss several policy implications for revitalizing the venture capital market, including measures to encourage investment in financially constrained early-stage firms, mechanisms to reduce information asymmetries, further regulatory easing, and policies to deepen exit markets.

Summary

Policy Study KOR Energy Market Design with Local Content Requirements

As governments accelerate the push toward carbon neutrality―while advancing strategies for emerging industries, responding to tighter protectionism, and adapting to shifting supply chains―pressures to build domestic industrial capacity, strengthen energy security, and secure technological autonomy have intensified. Although support for renewables and low-carbon processes is expanding, preferential measures for domestic producers risk distorting price signals, weakening allocative efficiency, and increasing exposure to trade disputes. This report examines how such industrial support interacts with energy-market design and assesses the implications for market participation, competitive dynamics, and overall efficiency.

We develop an asymmetric auction model that reflects cost and capability gaps between domestic and foreign firms and incorporates a lower-bound constraint on domestic firms’ ex-ante winning probability. Within this setting, we compare three instruments: (i) horizontal measures that reduce entry costs (e.g., grid and other infrastructure investment, market and regulatory reform); (ii) conditional, flat subsidies paid when a domestic bidder wins; and (iii) market-based, multi-dimensional (scoring) auctions that award non-price premiums for domestic content. When entry costs are significant, conditional subsidies tend to dampen participation less than scoring-based linkage and can deliver higher allocative efficiency. Combining horizontal and vertical tools helps meet domestic-content objectives while limiting distortions and widening competition relative to reliance on vertical measures alone.

Building on these results, the report recommends: defining measurable short- and long-term objectives; prioritising sectors with meaningful yet bridgeable capability gaps; translating non-price scores into “equivalent subsidies” for transparent calibration; embedding regular evaluation and sunset provisions; and continuously ensuring consistency with international trade disciplines.

Summary

Policy Study KOR A Study on Platform Collusion

This study analyzes the differences between traditional cartels and platform cartels and examines their specific characteristics. First, unlike traditional cartels, platform cartels may take the form of partial cartels in which only some firms participate, excluding a dominant competitor. Second, such partial cartels may result in intensified competition with the dominant competitor. Third, as competition strengthens, there is a possibility of efficiency gains that improve the welfare of certain users. Therefore, the institutional framework for investigating and addressing platform cartels should be improved to take account of potential efficiency gains and the possibility of enhanced competition.

Chapter 2 derives these results using theoretical model analysis. When the model incorporates firm heterogeneity, partial cartels may arise even in traditional single-sided market settings. However, such partial cartels are formed not to compete against a dominant firm, but rather to eliminate competition among the participating firms themselves. In fact, once a partial cartel is formed, the number of effective competitors in the market decreases, which in turn weakens market competition.
By contrast, when two-sidedness and indirect network externalities are introduced, partial cartels can instead promote competition on the opposite side of the market and narrow the market share gap between the leading platform and the cartel-participating platforms. As a result, there is also a potential for efficiency gains that improve the welfare of users on the opposite side of the market. These outcomes arise because platforms that had previously lagged behind the leading platform in competition on the opposite side are now able to strengthen such competition by leveraging the cartel arrangement.

Chapter 3 examines existing competition law provisions relevant to the characteristics identified in Chapter 2. With respect to the potential for cartels to generate efficiency gains, the chapter reviews buyer cartels and countervailing cartels. Although the potential efficiency-enhancing effects of both have been extensively examined in academic and theoretical discussions, they have rarely received serious consideration in actual case enforcement. Because the nature and manifestation of efficiency gains from platform cartels differ from those in traditional contexts, institutional reform will be needed to ensure that efficiency effects receive more serious attention in enforcement.

Regarding conduct involving the exclusion of competing firms through joint coordination, the chapter examines the regulation of abuse of collective dominance and the regulation of concerted refusals to deal. Joint coordination that falls short of an explicit agreement has not been actively enforced in Korea to date. However, as demands may arise in the future to expand the scope of application of these regulations, it is necessary to study their potential applicability in advance.

Summary

Research Monograph KOR The Effects of Serious Accidents Punishment Act on Labor Market Outcomes

This study examines the effects of the Serious Accidents Punishment Act (SAPA) on labor market outcomes to derive policy implications. SAPA was enacted in January 2021 and implemented in January 2022.

Chapter 2 summarizes the institutional structure and introduces key research questions. Specifically, this chapter reviews the legislative background, the structure of the law, early judicial trends, and existing literature on SAPA. Based on this review, I provide theoretical predictions regarding the effects of SAPA using a simple model where firms choose their level of safety investment and labor demand. The model predicts that while SAPA is likely to reduce accidents by increasing safety investment, it may simultaneously lead to a reduction in labor demand.

Chapter 3 analyzes data from an original firm-level survey to examine current situation of the Safety and Health Management Systems. I find that firms increased their safety investment following the implementation of SAPA. However, despite the quantitative expansion of safety investment, I find that the qualitative improvement of the Safety and Health Management Systems remains limited.

Chapters 4 through 6 present causal analyses of SAPA’s effects. In Chapter 4, I study the effects on the labor market for safety experts, a key input for safety investment. By applying Synthetic Difference-in-Differences (SDID) to observations from the Regional Employment Survey, I find that SAPA increased the employment of safety experts, with the effect growing from 2022 to 2024. However, the effect on wages was pronounced only in the short run; while SAPA increased wages in the second half of 2022, the effect became smaller and statistically insignificant by the second half of 2024, implying a highly elastic supply of safety experts.

Chapter 5 examines effects on workplace accident fatalities, the primary policy objective of SAPA. Using a Difference-in-Differences (DID) framework that exploits industry-level variation in exposure to SAPA, I find that the Act reduced three "traditional" types of workplace accidents: falls, crushes, and collisions. However, there is no evidence of significant effects on other accident types.

Chapter 6 investigates the effects of SAPA on labor demand for high-risk occupations. I combine information on occupation-level risk exposure and labor market outcomes using an empirical strategy in Continuous Treatment Difference-in-Differences framework. The results indicate that following the implementation of SAPA, employment levels in higher-risk occupations decreased relative to those with lower risk exposure.

Chapter 7 concludes the study by synthesizing the empirical findings and deriving policy implications.

Summary

Policy Study KOR Enhancing the Effectiveness of the Long-Term Care Insurance System

Korea’s rapid aging has brought the pressing policy concern of social hospitalization to the forefront. Older adults with low medical but high long-term care needs often occupy beds in high-cost medical institutions for extended periods―a trend that is driving up elderly medical spending. In 2008, the government introduced the Long-Term Care Insurance (LTCI) system to address the growing demand for care among older adults and improve their quality of life, while curbing inefficient medical spending. Since then, long-term care services have expanded in both eligibility and scope. The original three-grade classification was restructured into a six-grade system encompassing older adults with mild dementia, and home-based benefits were strengthened as part of a broader shift from facility-centered to home-centered care.

This study uses the Elderly Cohort Database of the National Health Insurance Service to examine how expanding LTCI affects medical expenditures. For identification, it employs a fuzzy regression discontinuity design and an event study design, exploiting the fact that LTCI grades are assigned based on the Long-Term Care Need Score and that the costs and benefits of these grade assignments shift exogenously around each threshold.

Comparing first-time applicants near each grade threshold, the analysis finds that, for Grades 1 and 2, which correspond to greater care needs, the expansion of either facility-based or home-based benefits reduced medical facility utilization and medical expenditures. By institution type, expenditures declined at hospital-level institutions and long-term care hospitals; by utilization type, inpatient costs decreased. For Grades 3 through 5, by contrast, expanding home-based benefits did not have a statistically meaningful effect on reducing medical expenditures. The event study results show that for the Cognitive Support Grade, which covers older adults with mild dementia, expanded home-based benefits lowered medical expenditures.

These results suggest that the effect of LTCI on medical expenditures may be heterogeneous across grades. Particularly for Grades 3 through 5, the quantity and quality of home-based services may have been insufficient to provide the integrated support to meet complex needs for both medical and long-term care. For the Cognitive Support Grade, however, beneficiaries face fewer physical constraints compared to those with greater care needs. This allows easier access to cost-efficient services such as Day and Night Care Centers for extended hours, which may explain the relatively larger reduction in medical expenditures.

Based on these findings, the study proposes policy measures for improving the quality of home-based care through the integration of medical and long-term care services. In particular, drawing primarily on international case studies, it offers recommendations to ensure the stable and effective implementation of the Integrated Care Support System scheduled for 2026. These measures include introducing intermediate long-term care facilities capable of providing a continuum of medical and long-term care services; developing a specialized workforce to ensure the smooth operation of the new framework; optimizing the expansion of this workforce in depopulating regions; and clarifying accountability for social hospitalization among stakeholders to improve the efficiency of medical expenditures.

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