■ The Korean economy maintains favorable export momentum, led by ICT products, yet domestic demand recovery is constrained by sluggish construction investment. 　 　 　 　 ○ The manufacturing industry maintains its recovery trend as ICT exports continued their growth momentum 　 　 　 　 - Although export growth moderated due to base effects, the overall momentum remained favorable, led by ICT products 　 　 　 　 - Consequently, the inventory-to-shipment ratio decreased, particularly in semiconductors, and the average capacity utilization rate remained elevated. 　 　 　 　 ○ However, despite the upward trend in equipment investment, the sustained weakness in goods consumption and construction investment continues to constrain domestic demand recovery. 　 　 　 　 - The substantial increase in semiconductor equipment investment suggests that the effects of strong export performance may gradually spill over into domestic economic conditions. 　 　 　 　 - By contrast, goods consumption continued its downward trajectory, while service consumption maintained modest growth. 　 　 　 　 - Some leading indicators related to construction improved, yet the construction market remains contracted, as indicated by the value of construction completed continuing to post declines. 　 　 　 　 - Accordingly, the inflation rate continues to decelerate.

The Impact of US Export Controls on Korean Semiconductor Exports / Hanhin Kim and Jaehan Cho This study empirically investigates the impact of recent US export controls on China on South Korea’s semiconductor exports. We analyze South Korean export data to shed light on the repercussions of US export restrictions on a third country. Our findings reveal a significant decline in Korean semiconductor exports following the October 2022 imposition of US controls. This decline was most pronounced in the memory, discrete devices, and discrete device components subsectors of the semiconductor industry. In addition, we observed a decrease in unit prices, especially for memory semiconductors, pointing to downward pressure on South Korea’s high-value-added semiconductor exports. These results provide some evidence of substantial negative impacts of US export controls on South Korea’s semiconductor industry, and particularly with regard to its high-tech products. Trump Tariffs and Roundabout Trade / Tadashi Ito Although there are many news articles of tariff dodging via the rerouting of made-in-China goods through third countries, relabeling these goods as made in Mexico or made in Vietnam, there have been no scientific studies on this issue. This paper provides statistical evidence regarding whether such practices are taking place. Using monthly trade statistics at the most disaggregated level and analyzing data up to 2019, the year before the COVID-19 shock, little evidence of roundabout trade is found. With an extended dataset up to 2023, overall there is little sign of roundabout trade, although some slight signs of roundabout trade are found for Mexico and Vietnam. Experts to the US and Imports from China during the US-China Tariff War: Evidence from Regional Trade Data in Vietnam / Kazunobu Hayakawa This study empirically investigates how the exports of downstream products to the US change the imports of their upstream products from China during the US-China tariff war. To accomplish this, we use province-level trade data in Vietnam, known to be a country that increased its exports to the US market in place of China, i.e., known to enjoy a trade diversion in the US market. The use of regional trade data enables us to capture the input-output linkages more precisely. Specifically, focusing on the trade in general and electrical machinery industries from January of 2019 to December of 2023, we regress imports of upstream products from China on exports of their downstream products to the US, finding that the rise of exports of downstream products to the US significantly increases imports of their upstream products from China. On the other hand, the rise in these products does not significantly increase the imports of upstream products from Japan, Korea, and Taiwan. Furthermore, the inputoutput linkage between exports to the US and imports from China was found to be greater in provinces with better business environments in terms of entry costs, transparency in public services, and public support to businesses. Economic Effects of Unemployment Insurance for Entrepreneurs in South Korea / Jiyeon Kim This paper aims to examine the economic impact of the implementation of an unemployment insurance (UI) program for entrepreneurs in South Korea. Despite facing labor market risks similar to paid employees, entrepreneurs are often not eligible for UI in many countries. South Korea, where entrepreneurs represent over 20% of the workforce, is considering a design of UI for entrepreneurs, with the goal of providing coverage to this group by 2025. This study examines how the addition of UI for entrepreneurs would impact the economy using a model of entrepreneurship based on a search and matching framework. The study’s findings suggest that the implementation of UI for entrepreneurs would lead to increased business closures and reduced hiring, resulting in a slack labor market, which in turn would reduce social welfare overall. However, social welfare can be improved by subsidizing UI contributions paid by entrepreneurs, which provides the greatest improvement in social welfare compared to other social protection systems such as unemployment assistance.

■ The Korean economy has sustained strong export growth, primarily？fueled by the semiconductor sector. However, domestic demand？remains subdued, constraining overall economic improvement. 　 　 　 　 ○ Semiconductor-related production indicators maintained positive？momentum, with exports continuing to ascend, particularly in ICT items. 　 　 　 　 - Increased semiconductor production and shipments, coupled with？reduced inventory, are driving the recovery in the manufacturing sector. 　 　 　 　 - Exports sustain their upward trajectory amid modest global economic？expansion and robust semiconductor market conditions. 　 　 　 　 ○ However, services production growth remained tepid, and？construction investment continued its descent, indicating that the？recovery phase of domestic demand has not yet materialized. 　 　 ？ 　 - Services production exhibited tepid growth, primarily driven by？wholesale and retail trade and accommodation and food services. 　 　 　 　 - Amid persistent declines in retail sales and rising loan delinquency？rates, the accumulated slump in construction orders received led to a？contraction in construction investment, suggesting employment？conditions are gradually adjusting. 　 　 　 　 ○ Meanwhile, external uncertainties have slightly increased on the？recent escalation of geopolitical risks in the Middle East and？concerns over a U.S. recession.

[Call for Papers] KDI Journal of Economic Policy: Population, Aging and the Economy The KDI Journal of Economic Policy is now inviting submissions for an international conference on “Population, Aging, and the Economy,” scheduled to take place in Seoul, Korea, on Thursday June 5, 2025. Papers that are accepted and presented at the conference are automatically submitted to the KDI Journal of Economic Policy (http://www.kdijep.org/) for a special issue. The conference aims to bring together research that explores the drivers and effects of demographic trends. We welcome papers from a broad range of fields including labor, public, macro, urban, and health economics. Topics of interest include, but are not limited to: - Addressing sustained low fertility rates - Disparities in longevity advancements - The role of immigration in workforce dynamics - Aging and its impact on fiscal health - Aging and productivity growth Preference will be given to research with implications for the Korean economy. The KDI will cover the following for each presenter: (i) roundtrip economy airfare; (ii) hotel accommodation; (iii) an honorarium of KRW 500,000 (approximately USD 360), and an additional honorarium upon paper acceptance for publication in the KDI Journal of Economic Policy. Please submit a 2 to 5-page proposal outlining your research and including some preliminary empirical or theoretical results. If you have a preliminary version of your paper available, you may include it with your submission. Send your proposals by October 31, 2024, to guest editor Munseob Lee at munseoblee@ucsd.edu with “KDI JEP conference submission” in the subject line. Authors will be informed by November 15, 2024, if their paper is selected. Please note that only selected authors will be contacted. Drafts of accepted papers should be completed one month before the conference, as discussants will be assigned to all presentations at the conference.  

Visit to the Central Party Economic Committee and the Vietnam Academy of Social Sciences (VASS) President Cho Dong-chul visited to the Vietnam Academy Of Social Sciences (VASS) and the Central Party Economic Committee on April 16th. The two organizations are important ones that conduct research and analyze Vietnam's economic policies. To establish a benchmark for Korea's case and acquire a deeper understanding of the country's development experience, they requested a meeting with KDI.  (President Dong-chul Cho speaking at the Vietnam Academy Of Social Sciences (VASS)) "As the conflict between the United States and China, two countries that trade heavily with Korea, intensifies, Korea's diplomatic space is contracting," said President Cho. "Vietnam is emerging as a necessary alternative in the midst of the G2 conflict." "With the strengthening of economic ties between Vietnam and Korea, we anticipate future mutual development," he added. "Vietnam has experienced substantial development in the past thirty years; nevertheless, it confronts many challenges such as urban-rural inequalities, climate change, and poverty," said Phan Chi Hieu, President of the Vietnam Academy of Social Sciences (VASS). "The past growth model has become outdated, so we are currently working on creating new policies to respond to economic change and overcome these limitations." he explained. Vietnam aims to achieve middle-income level by 2030 and high-income status by 2040.  President Cho Dong-chul expressed his hope for the representative research institutes of both Korea and Vietnam to make contributions across multiple domains as part of the broader framework of economic cooperation between the two countries.  (Director Dong-cheol Cho, Vice-Chairman Nguyen Hong Son, etc.) He then visited the Central Party Economic Committee and exchanged pleasantries.  Vice president Nguyen Hong Son extended a warm welcome to the delegation, remarking, "In the implementation of economic policies, knowledge from advanced countries is essential, and I believe Korea is the country from which we can gain the most valuable experience and practical insight." When asked for his opinion on the experience of Korea's economic development, President Cho stated, "It is important to establish a system in which people who work hard can be rewarded." He further stated that this principle has been consistently upheld since President Park Chung-hee. Vice President Nguyen Hong Son said, "Vietnam has been pursuing industrialization since the 1960s, but there is still a long way to go." In response, President Cho said, "Companies will inevitably need to grow in size in order to increase productivity." "During the industrialization process, the Park Chung-hee administration chose which companies should be supported by government by export performance," he explained. This means that to receive government subsidies, companies must prove themselves through export volume in the global market, rather than by lobbying politicians.  Vice Chairman Nguyen Hong Son said the principle that “Victory doesn't come from being chosen; being chosen comes from victory.” is interesting. Companies were able to receive government support only when they proved their performance. In addition, President Cho emphasized the importance of a rule-based economic system, human resource investment, and a culture that fosters innovative thinking. He also explained the dark side of the Korean economy, such as lax management of Chaebol and the subsequent economic crises." Lastly, Vice Chairman Nguyen Hong Son said that Vietnam is currently very interested in digitalization, green economy, and the establishment of a think tank system, and that he expects to discuss these topics with KDI.   Written by: Bojeon Kim, Research Associate at the President Office,  044-550-4003, kbj@kdi.re.kr  

Kukmin Future Forum 2023 The economic outlook is bleak: ‘Flexibility’ is the key to resolving the situation Korean Economic Outlook and Reform Tasks at the ‘Kukmin Future Forum 2023’ On the 17th October, Dongchul Cho, the president of the Korea Development Institute, delivered a presentation titled “Korean Economic Outlook and Reform Tasks” at the ‘Kukmin Future Forum 2023’ organized by Kukmin-Ilbo. President Cho began his speech by stating that our economy can no longer grow at the high rates of the past and emphasized that improving productivity must be our paramount task. Korea’s Total Factor Productivity Index (TFP) has been below 1% over the past decade and currently does not meet the average of the world’s advanced economies. President Cho projected that if the current situation persists, Korea’s GDP per capita ranking within the OECD will gradually decline and the economic gap with the United States will widen. He cited Japan’s GDP per capita, which once surpassed that of the U.S. but has now fallen below 50%, as an example, warning that Korea could follow this trend. President Cho introduced reform measures to solve the current low economic productivity issue intertwined with various causes such as low birth rates, aging population, and economic maturity. He first explained the “entry and exit reform,” which facilitates innovative companies to enter new markets while allowing less productive businesses to withdraw from those markets. The regulations on Lawtalk and the Uber/Tada were used as examples of how regulatory measures impede the progress of new businesses. In addition, there is so-called ‘Peter Pan syndrome’, in which companies that should be eliminated remain as ’zombie companies’ because of continuous government support or do not increase the size of the company to receive government support, both of which extinguish the sparks of economic growth. Following that, President Cho explained the three main reforms; labor, education, and pensions. In relation to labor reform, the unprecedentedly high economic participation rate of women in their 30s is a positive phenomenon. However, it is worth noting that this number is the result of women forgoing childbirth. Therefore, He explained that our society should provide support to ensure that childcare and work are compatible through methods such as flexible working hours. In addition, the rigid wage and employment system are another factors undermining the dynamism of our economy. Consequently, they must be modified to be more flexible. Meanwhile, in terms of education reform, President Cho explained that there needs to be a shift towards a consumer-centered approach, tailored to the demands of students and parents. He criticized that the current system for evaluating universities based on uniform standards and distributing subsidies, which leads to complacency in reform efforts and diminishes the quality of educational services. Furthermore, he also pointed out the reluctance of politicians to address the unsustainability of the current pension system due to fear of public backlash. As a solution, President Cho proposed the establishment of a new pension system, separate from the current one, to reduce the burden of supporting the elderly on younger generations and to ensure that they receive a definite return on their contributions in the future.  Written by: Bojeon Kim, Research Associate at the President Office,  044-550-4003, kbj@kdi.re.kr