South Korea Expected to Increase GDP by up to 2.12% through IPEF Participation

Hankyung Research Institute's Report on the Economic Effects of IPEF

[Asia Economy Reporter Jin-ho Kim] An analysis has suggested that South Korea's participation in the Indo-Pacific Economic Framework (IPEF) could increase its gross domestic product (GDP) by up to 2.12%. In particular, if the Indo-Pacific region forms an economic cooperation body excluding China, strategic industry exports to China may decrease. However, if government policies such as support for entry into regional markets and domestic reshoring companies are effectively implemented, this GDP growth could be realized.

The Korea Economic Research Institute (KERI) released this analysis on the 12th in a report titled "Economic Effects of the Indo-Pacific Economic Framework (IPEF)."

According to the report, joining IPEF presents both positive and negative aspects for the Korean economy. It analyzed that if IPEF member countries, including South Korea, regulate exports and imports of strategic goods to and from China, there could be a GDP decline due to reduced exports to China, alongside expansion of domestic industries and increased exports to other regions. The report specifies five strategic industries (items): minerals including uranium, minerals including nuclear materials, minerals including battery raw materials such as lithium and cobalt, electrical and electronic products including semiconductors, and telecommunications.

As member countries face restrictions on exports and imports of strategic items to China, South Korea is expected to experience a short-term decrease in GDP. However, KERI analyzed that if government policies are timely implemented to allow South Korea to replace China’s role in regional markets, the losses could be offset and significant positive effects could be expected.

KERI constructed a multi-region, multi-sector computable general equilibrium (CGE) model linked by international trade and capital flows to estimate economic impacts under various scenarios.

Analyzing the negative effect of reduced exports to China and the positive effect of replacing China in regional markets (assuming 70% of current China-related regulations), South Korea’s GDP is projected to increase by 2.12% (40.1256 trillion KRW). This is because China, whose growth outlook is declining, is reluctant to escalate conflicts with the U.S., and past economic retaliation against Australia did not benefit China at all.

It was also analyzed that China, with President Xi Jinping’s upcoming third term, is unlikely to expand external risks. However, it was added that medium- to long-term retaliation by China cannot be ruled out, so preparations are necessary.

Cho Kyung-yeop, head of KERI’s Economic Research Division, explained, "The goal within the Indo-Pacific region is to exclude China or minimize dependence on China. Since restrictions on exports and imports to China in strategic industries are expected, government policy support after joining IPEF is necessary to maximize the benefits of membership."

He pointed out that active support policies to promote regional export and investment should be prepared following IPEF membership. The report emphasized the need for government financial and institutional support, including ▲expansion of tax incentives for research and development (R&D) investment ▲increased support for reshoring companies (with flexible types and methods of support) ▲strengthening labor market flexibility ▲and easing regulations such as the Serious Accident Punishment Act.

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