Hankyung Research Institute: "Disaster Relief Funds More Effective When Targeted to Affected Groups"

Comparison of Economic Effects Among Korea, US, and Japan
"Significant Income Compensation and Economic Stimulus Effects"

[Asia Economy Reporter Kim Heung-soon] Amid ongoing debates among political circles, the government, and the Blue House over the method of distributing the 4th round of disaster relief funds, an analysis by a private research institute has drawn attention by showing that selectively providing support to COVID-19 affected groups is more effective than universal payments to all citizens.

According to the Federation of Korean Industries on the 10th, its affiliated research institute, the Korea Economic Research Institute (KERI), recently presented findings based on the economic effects of COVID-19 disaster relief funds distributed in Korea, Japan, and the United States during March-April last year, as well as opinions from major international organizations such as the World Bank and the International Monetary Fund (IMF). The study concluded that selective support focused on vulnerable groups has a greater effect on income compensation and economic stimulus than universal support.

Korea’s April Last Year: 1 Million Won per 4-Person Household
Consumption Stimulated via Card Sales
Universal Support Effect Limited to Maximum 36%

Regarding the first round of COVID-19 disaster relief funds in the three countries, Korea provided emergency disaster relief funds of 1 million won per 4-person household to all citizens in April last year. The required budget was 14.3 trillion won, equivalent to 0.7% of the gross domestic product (GDP). Japan also injected 12.7 trillion yen (approximately 135 trillion won), equivalent to 2.4% of GDP, in the same month, giving 100,000 yen (about 1.05 million won) per person to all citizens. The United States, in March last year, provided support payments of $1,200 (about 1.34 million won) per adult and $600 (about 670,000 won) per child to the bottom 90% income group. The budget amounted to $293 billion (about 327 trillion won), which is 1.4% of GDP.

KERI analyzed the economic effects of disaster relief funds distributed in Korea, Japan, and the U.S. based on data released by economic research institutes such as the Korea Development Institute (KDI), the Japan Research Institute, and the National Bureau of Economic Research (NBER). In Korea, the consumption stimulation effect of the disaster relief funds was measured by comparing year-on-year changes in card sales. The increased sales amount in all usable sectors nationwide due to the support payments was estimated at 4 trillion won. This corresponds to about 26.2% to 36.1% of the disaster relief fund input resources. In other words, when a 4-person household received 1 million won in disaster relief funds, about 260,000 to 360,000 won was spent.

Considering that the usage period and places for the disaster relief funds were limited, it can be interpreted that the received 1 million won was fully spent, while about 640,000 to 740,000 won of previous card consumption was saved and not spent. KDI noted, "The maximum 36% effect relative to the input resources of the disaster relief funds indicates limitations in expanding sales in affected sectors."

An emergency disaster relief fund usage notice is posted at Tongin Market in Jongno-gu, Seoul. Photo by Moon Honam munonam@

Japan: 42% of Expected Effect
U.S.: Increase in Savings Rather Than Consumption

Japan’s consumption stimulation effect from disaster relief funds was lower than Korea’s at 23.6%. Although only 5.1% of the population was directly affected by COVID-19, Japan expanded the payment target to all citizens due to opposing public opinion. The universal disaster relief payments generated an additional consumption of 3 trillion yen (about 32 trillion won), but this was only 42.3% of the Japanese government’s expected 7.1 trillion yen (about 71 trillion won), according to the Japan Research Institute. It added, "As the cash support target expanded, the government’s fiscal burden increased," and emphasized, "Policy effectiveness should be enhanced through selective support focused on vulnerable groups."

In the United States, a total demand effect (increase in consumption and investment) of $175 billion (about 195 trillion won), equivalent to 60% of the budget input, was generated. Although the effect was greater compared to Korea and Japan, the Center for Economic and Policy Research (CEPR) in the U.S. also analyzed that conditional support targeting unemployed individuals was six times more effective in increasing total demand. It expressed the opinion that "selective support focused on the unemployed is much more effective than universal disaster relief payments." Furthermore, according to the conservative think tank Heritage Foundation, most citizens outside the affected groups used the disaster relief funds for savings rather than consumption, causing the U.S. household savings rate in April last year to rise sharply to 33.7% compared to 12.9% the previous month.

Based on the analysis of disaster relief fund effects in the three countries and evaluations from the World Bank and IMF, KERI stated, "It is necessary to design selective fiscal support centered on vulnerable groups such as self-employed or irregular workers without fixed income."

This content was produced with the assistance of AI translation services.