This study examines the development of energy policies during the EU energy crisis following the Russia–Ukraine war, focusing on three areas: (1) analysis of EU-level institutions, policies, and statistics; (2) comparative case studies of four major member states; and (3) an empirical analysis of energy-related uncertainty shocks. The main findings of this study are as follows.

First, since the outbreak of the Russia–Ukraine war, the EU's energy transition has been restructured to harmonize the goals of climate neutrality and energy security. The policy package has become multi-layered accordingly, consisting of (1) short-term measures to mitigate supply shocks (diversification of import sources, stockpiling, and demand reduction), (2) mechanisms to buffer price surges (targeted subsidies, price caps, etc.), and (3) medium- to long-term structural transformation (facilitation of renewable energy permitting and investment, expansion of grids and system flexibility, and reform of market rules).

Second, country case studies show that even within the same EU framework, transition pathways differ depending on initial energy mixes, import dependency, political coalitions, industrial structures, and levels of grid interconnection. For example, Germany has had to simultaneously manage issues related to prices, system flexibility, and social acceptance as rapid changes in gas, coal, and nuclear policies (including nuclear phase-out) have been combined with the expansion of renewable energy. France, by contrast, has a low carbon intensity in electricity generation due to its nuclear-centered energy mix, but operational risks—such as nuclear availability rates, maintenance, and cooling water constraints—have a pronounced impact on the stability of power supply. Spain, despite its high share of renewables, faces limited buffering of price and supply shocks due to its low level of interconnection (below 10%) within the Iberian Peninsula. Poland illustrates a typical case where coal dependence and industrial and employment structures constrain the pace of transition, and where common EU policies may face delays when they conflict with domestic political economy conditions. This heterogeneity does not make it impossible to draw general lessons from EU policy; rather, it provides a key policy design principle that policy packages must be tailored and sequenced according to country-specific constraints.

Third, the empirical analysis of uncertainty shocks shows that the very environment in which transition policies are implemented can be affected by uncertainty. Since the uncertainty index likely reflects not only policy factors but also a combination of war, disasters, and market volatility, the interpretation of such shocks should not focus on causal effects of policy uncertainty itself. Even in regions like the EU, where interconnection and market integration are relatively advanced, the expansion of balancing platforms are essential in that system flexibility and market design are central to the transition.

Based on these findings, the report draws the following implications. Since the Russia–Ukraine war, the EU's energy transition has evolved beyond the simple climate goals to become closely linked with energy security and industrial competitiveness. Accordingly, it has become important to establish institutional mechanisms to mitigate sharp energy price volatility and to ensure that market participants can anticipate a predictable policy trajectory. In particular, sophisticated institutional design and a stable policy environment are required to prevent policy uncertainty from undermining private investment and industrial production. Unlike Europe's interconnected power grid, Korea has the characteristic of a virtually "islanded system," making the establishment of a stable power system a central challenge in the energy transition process. To address this, technological and infrastructural responses—such as securing baseload power, enhancing grid flexibility, advancing load-following power supply technologies, promoting AI-based energy innovation, and expanding power networks—must be accompanied by supportive policies and institutional frameworks. Furthermore, in response to energy market shocks stemming from geopolitical crises such as the Russia–Ukraine war, it is necessary to proactively develop comprehensive strategies, including diversification of energy supply chains, expansion of strategic reserves, and fuel switching, in order to minimize negative impacts on domestic industries. Additionally, careful attention must be given to demand–supply adjustments through the normalization of electricity pricing and to supporting vulnerable groups.

The objective of this research is to conduct an in-depth analysis of the AI industrial strategies, key policy frameworks, and ecosystems of Saudi Arabia and the UAE, alongside case studies of Korean companies entering these markets. Based on this analysis, the study aims to propose policy implications and government support measures to facilitate the strategic expansion of Korean AI companies into the region, incorporating a comparative evaluation of the distinctive characteristics of each country’s AI sector.

Saudi Arabia and the UAE, the focal points of this study, are leading Arab oil-producing nations whose geopolitical and economic influence has grown significantly since the mid-1970s oil crisis. Today, AI technology is emerging as a cornerstone of their socio-economic transformation, driven by substantial financial resources and strategic advantages in renewable energy. By fostering advanced AI capabilities and robust industrial ecosystems, these countries seek to reduce their dependence on oil, enhance economic efficiency, and secure sustainable drivers of future growth.

While South Korea and these two countries share the common challenge of building sovereign AI ecosystems to become leading players in the global AI industry, they are uniquely positioned to complement each other’s strategic gaps through mutual cooperation. South Korea is well placed to leverage the vast capital reserves and strong policy commitment of Saudi Arabia and the UAE toward AI integration. This environment provides fertile ground for Korean AI startups to attract investment and scale into the Middle Eastern market.

At the same time, Saudi Arabia and the UAE can benefit from South Korea’s expertise in areas ranging from data center infrastructure to AI semiconductor supply chains, while collaborating on AI-driven initiatives to strengthen their domestic manufacturing bases. Ultimately, by maintaining balanced cooperation with both the United States and China, South Korea and these Gulf countries can establish strategic partnerships for mutual growth, further deepening the economic ties that have evolved since the 1970s.

Following an overview of the foundational industrial strategies for AI development in Saudi Arabia and the UAE, Chapter 2 examines key policy frameworks and the current status of AI infrastructure, R&D, and startup ecosystems, as well as regulatory environments and AI service adoption. Both countries intensified their AI initiatives in the late 2010s as part of a strategic transition from oil-dependent economies to knowledge-based economies. To this end, they are implementing comprehensive industrial policies, including the formulation of national AI strategies, the establishment of dedicated national agencies and state-owned enterprises, and the expansion of international cooperation with global technology leaders.

However, these two countries exhibit distinct characteristics that defy simple categorization as similar Arab oil-producing economies. Differences in economic and population scale, the proportion of native citizens, industrial structures, and openness to foreign investment result in diverging strategic priorities. For instance, while Saudi Arabia emphasizes a “self-reliant” sovereign AI model centered on domestic development and its internal market, the UAE pursues an “open” sovereign AI framework that leverages global networks, international talent, and the open-sourcing of its proprietary Falcon model.

Furthermore, reflecting the UAE’s federal structure, Abu Dhabi and Dubai are spearheading distinct AI trajectories. Abu Dhabi prioritizes the development of robust infrastructure by constructing large-scale data centers through strategic partnerships with U.S. technology firms and developing Arabic-specific LLMs. In contrast, Dubai positions itself as a global gateway, serving as a premier testbed for AI startups and facilitating diverse pilot projects to attract international innovators.

Chapter 3 analyzes the AI industry ecosystems of Saudi Arabia and the UAE using key indicators such as cloud service market size, semiconductor trade volume, AI research output, and venture capital investment. Driven by strong leadership, national strategic visions, and substantial capital, both countries are experiencing rapid growth across these dimensions.

Saudi Arabia is aggressively expanding its data center infrastructure and increasing semiconductor imports to ensure stable AI development and deployment. While its global share of AI research publications—a proxy for sovereign AI capability—is rising, its research productivity (measured by publications per million people) remains relatively modest.

Meanwhile, the UAE is spearheading the “Stargate UAE” project to strengthen its AI data center and cloud infrastructure. Notably, as of 2023, its semiconductor imports exceeded those of Saudi Arabia by more than fourfold. Through proactive global talent acquisition and open research collaboration, the UAE has developed the capability to produce proprietary Arabic large language models (LLMs), with its AI research productivity now surpassing that of the United States.

In terms of international cooperation, both countries maintain a strategic balance, avoiding overreliance on either the United States or China while leveraging cutting-edge global technologies. Furthermore, although venture capital investment appears lower than in major economies, this reflects a distinctive market structure in which AI investment is predominantly driven by state-owned enterprises rather than the private venture sector.

Chapter 4 examines South Korea’s AI policies, implementation framework, and support systems for overseas expansion. It assesses the competitiveness of the domestic AI industry by analyzing national statistics and global AI indices. Furthermore, the chapter identifies the patterns and characteristics of market entry into the Middle East through sector-specific case studies of Korean AI companies in Saudi Arabia and the UAE.

Regarding the policy framework, although the national AI agenda has gained momentum under the current administration, challenges remain in coordinating inter-ministerial interests and formulating efficient and detailed policies. Notably, a comprehensive support system tailored to the Middle Eastern market has yet to be fully established.

In terms of market structure, while the Korean AI market is expanding rapidly, a clear bifurcation exists: a small number of large corporations lead the development of large-scale models and infrastructure, while a large number of startups dominate the AI application sector. This division is also reflected in their market entry strategies in the Middle East; large corporations primarily focus on large-scale AI platforms—such as data centers and smart cities—whereas startups concentrate on specialized AI application services.

By country, Saudi Arabia currently accounts for a higher number of Korean market entries than the UAE. In Saudi Arabia, cooperation is expanding across the entire AI value chain—from infrastructure to development and application. In contrast, in the UAE, Korean companies are primarily entering AI application sectors, particularly in healthcare and transportation.

Chapter 5 outlines strategic frameworks for Korea–Middle East AI cooperation and proposes support measures to facilitate the expansion of Korean AI startups into the region.

First, it is imperative to establish high-level strategic partnerships. Given that Saudi Arabia and the UAE predominantly adopt a “top-down” approach driven by strong central leadership, establishing an integrated bilateral cooperation framework—comprising senior government officials and key corporate stakeholders—is essential to ensure seamless market entry.

Second, the joint development of “AI green infrastructure” should be prioritized. This entails the synergistic integration of the Middle East’s abundant renewable energy resources with Korea’s AI semiconductors and data center capabilities.

Third, fostering AI talent and establishing joint R&D platforms are critical for both South Korea and Gulf oil-producing countries. This can be achieved through collaborative research with leading institutions and the development of joint degree programs.

Fourth, joint AI solution demonstration projects should be actively promoted. To bridge the gap between R&D and commercialization, private sector participation should be encouraged through large-scale pilot initiatives.

Fifth, the establishment of a dedicated cooperation fund is essential for the timely implementation of strategic projects. By providing financial support for joint ventures, technology transfer, and pilot programs, both sides can accelerate the realization of their shared strategic objectives.

Meanwhile, to facilitate the international expansion of AI startups, the following concrete support measures are proposed.

First, it is necessary to consolidate fragmented support policies currently dispersed across multiple ministries and agencies into an integrated support system. Such streamlining would prevent inefficient competition over performance metrics among government bodies and eliminate duplication in budget allocation.

Second, as startups entering the Middle East often face barriers related to investment, labor, and tax regulations, as well as unfamiliar commercial practices and complex bidding procedures, establishing a unified market intelligence platform is essential. The systematic provision of country-specific market entry information would significantly reduce information search costs and mitigate entry risks for startups.

Third, the initial market entry phase entails substantial costs, including in-depth market research, brand positioning at trade exhibitions, and the establishment of local offices. Government-backed partial funding for these upfront expenses would incentivize startups to pursue opportunities in the Middle East more proactively and serve as a catalyst for attracting subsequent private investment.

Fourth, to address supply–demand imbalances and potential conflicts of interest within the nascent AI ecosystem, the support system should promote value-chain collaboration. This can be achieved by expanding R&D funding for collaborative projects among startups at different stages of the value chain and by providing incentives for mutually beneficial cooperation.

This study explores policy directions for restructuring the global production networks (GPNs) of South Korea's major industries in response to the escalating U.S.-China strategic rivalry and the worldwide expansion of protectionist, inward-looking industrial and trade policies. Global production networks refer to cross-border production systems in which various stages of the manufacturing process required to produce final goods are distributed across multiple countries. This study specifically focuses on analyzing GPNs formed through active foreign direct investment (FDI) by Korean companies.

This study has four main research objectives. First, it empirically analyzes how Korean companies' outward foreign direct investment (OFDI) has shaped the overseas sourcing structure of domestic production and export patterns through global production network (GPN) formation, and further examines its effects on firm performance and employment (Chapter 2). Second, it examines the trends and underlying factors driving GPN reorganization through shifts in OFDI by Korean and global multinational corporations amid the intensifying U.S.-China strategic competition since the first Trump administration (Chapter 3). Third, it assesses the strategic importance of the United States, China, and the Global South as key hubs for Korea's future GPN restructuring, and proposes country-specific policy directions by analyzing their characteristics as production cooperation partners (Chapter 4). Fourth, building on these findings, it recommends industrial, trade, and ODA policy measures to enhance the effectiveness of Korea's GPN restructuring efforts (Chapter 5).

This study distinguishes itself from previous global supply chain (GSC) research by examining Korea's supply chains through the lens of global production networks (GPNs) developed through long-term foreign direct investment (FDI), analyzing the necessity and key factors for restructuring, and identifying priority policy tasks. The specific contributions of this study are as follows:
First, it empirically demonstrates that GPN formation through OFDI substantially explains changes in both the overseas sourcing structure and (intermediate goods) export patterns of Korea's major industries (Chapter 2, Sections 1 and 2).
Second, using long-term firm-level panel data (2006-2022) and instrumental variables, it shows that OFDI significantly increased both froms’ domestic sales and employment (Chapter 2, Section 3).
Third, by analyzing cross-border investment data from global multinational corporations, it documents shifts in industry-specific OFDI flows from the 2010s to the present (2024) and identifies key characteristics of the ongoing GPN restructuring (Chapter 3, Section 2).
Fourth, through surveys of experts and business leaders across ten major industries of South Korea, it compiles assessments of GPN restructuring needs, key risks and opportunities, and policy demands, providing foundational data for analyzing the drivers of current GPN restructuring trends (Chapter 3, Section 3).
Fifth, drawing on literature reviews, statistical and econometric analyses, overseas field research, surveys, and expert consultations, it presents priority policy tasks for GPN restructuring with respect to the United States, China, and five key Global South countries (Chapter 4).
Sixth, it proposes a systematic and comprehensive roadmap for Korea to effectively restructure its GPNs during the era of U.S.-China strategic competition by organizing domestic policy directions into three categories: industrial policy, trade policy, and Official Development Assistance (ODA) policy (Chapter 5).

Education is central to human capital accumulation, productivity growth, and social mobility. While global progress has been substantial in expanding access to primary education, participation in secondary and tertiary education remains uneven in many developing countries. The Philippines exemplifies this challenge: despite improvements in basic education, structural barriers—ncluding financial constraints, labor-market uncertainty, and skills mismatches—continue to limit access to higher education and weaken incentives for households to invest in university study. Scholarship programs are therefore a key policy instrument for easing financial constraints and expanding participation in higher education in the short run.

This report evaluates the impact of a local university scholarship program implemented by the Cagayan de Oro City government in the Philippines. Moving beyond enrollment alone, the study examines a range of student outcomes, including academic persistence, academic specialization and performance, intentions to pursue professional certification, civic engagement, and short-run psychological well-being. By doing so, the report attempts to provide new evidence on the mechanisms through which scholarships may influence human capital formation before long-term outcomes such as graduation and labor-market earnings materialize.

The analysis finds that the scholarship program leads to modest improvements in student persistence, but shows limited short-run effects on academic performance, field specialization, and most indicators of psychological well-being. Strong conclusions regarding mental health impacts are not warranted. The findings highlight the need for further research on how financial aid affects students’ educational outcomes and psychological well-being in a short run.

An important feature of the program is that, although it is formally income-targeted, the income threshold is relatively mild, and the program functions in practice more as a merit-oriented than a need-based intervention. The modest gains in persistence combined with limited broader effects suggest that merit-based scholarships alone may not be sufficient to generate sustained or multidimensional impacts, particularly in settings where financial stress, academic preparedness, and labor-market uncertainty interact.

From a policy perspective, the findings underscore the importance of careful scholarship design. Scholarships can be effective in improving persistence, but their impact may be strengthened by incorporating stronger need-sensitive components and complementary support, such as academic advising, mental-health services, or living-expense subsidies. Without such design features, merit-based programs risk producing narrow benefits or reinforcing existing inequalities.

The report also carries implications for Korea’s development cooperation strategy. While Korea’s ODA has supported Filipino students primarily through scholarships for study in Korea, this approach generates limited spillovers for the Philippine higher education system and domestic labor market. International experience—such as Australia’s in-country scholarships in Papua New Guinea and Germany’s in-region postgraduate programs—suggests that locally embedded scholarship programs, implemented in partnership with domestic universities and aligned with national skill needs, can foster more sustainable human capital development.

The report therefore recommends that Korea expand its support toward locally grounded, jointly designed scholarship and training programs in the Philippines, potentially linked with industry partnerships in strategic sectors such as digital technology, engineering, and green industries. Such an approach can simultaneously strengthen the Philippines’ domestic human capital base and support deeper economic and industrial cooperation with Korea.

Overall, the report concludes that scholarship programs are a valuable but incomplete policy tool. When carefully designed and embedded within broader education and labor-market strategies, they can contribute meaningfully to human capital development, equity, and long-term inclusive growth.

As artificial intelligence (AI) is shaping the global economy and society as a general-purpose technology, concerns are growing that disparities in countries’ capacity to adopt AI may further widen. While AI holds significant potential to enhance productivity, foster economic growth, and expand trade, its benefits could be increasingly concentrated in a limited number of leading countries and firms due to the unequal distribution of technology, capital, talent, and data. In particular, many developing countries face structural constraints in adopting AI as a result of insufficient digital infrastructure, limited human capital, and underdeveloped institutional frameworks. Over the medium to long term, these constraints risk exacerbating global growth gaps and socioeconomic inequality.

Against this backdrop, this study focuses on countries’ AI adoption capacity and analyzes disparities in AI readiness across income levels, with the aim of identifying cooperation strategies tailored to the characteristics of different country groups. It also examines the agendas, policies, and initiatives introduced by leading countries−such as the United States, China, the European Union, Japan, and Singapore−as well as by multilateral cooperation frameworks to support capacity building for AI in developing countries. Through this analysis, the study closely reviews international trends and derives policy implications for Korea’s role in this evolving landscape.

To explore customized cooperation strategies by country group, Chapter 2 employs the IMF’s AI Preparedness Index (AIPI) to assess national AI adoption capacity and analyzes the relationship between AI readiness and SDGs achievement indicators by income group. Significant disparities in AI preparedness exist across countries. Most low-income countries face urgent needs in infrastructure development and basic human capital formation. By contrast, developing countries that have achieved a certain level of infrastructure and human capital have reached a level where technology and innovation cooperation is feasible, and they have also made considerable progress in regulatory frameworks. These cross-country gaps are closely linked to differences in both the level and quality of progress toward the Sustainable Development Goals (SDGs), underscoring the need for differentiated cooperation strategies tailored to country-specific conditions.

Chapter 3 examines the policies and programs of major AI-leading countries−including the United States, China, the European Union, Japan, and Singapore−toward developing countries, analyzing government-led initiatives, public-private partnerships, and multilateral cooperation efforts. International cooperation in AI by leading countries reflects a combination of market-expansion objectives and broader goals related to geopolitical and economic stability. In the context of strategic competition between the United States and China, the role of countries that share similar positions with Korea has become increasingly important. Under these circumstances, it is desirable for Korea to support the adoption of AI based on shared values within the international community and to promote economic cooperation that facilitates its diffusion.

Chapter 4 reviews discussions on AI-related cooperation and initiatives for developing countries within major multilateral frameworks, including the G7, G20, OECD, United Nations, ITU, multilateral development banks (MDBs), and the WTO. These institutions recognize limited data access, inadequate digital infrastructure, and shortages of skilled human resources in developing countries as core challenges. At the same time, they are strengthening efforts to link development cooperation with AI ethics, safety, and standards. Such multilateral efforts complement bilateral cooperation while serving as critical platforms for coordination and the formation of global AI governance.

Based on the foregoing analysis, Chapter 5 presents Korea’s AI cooperation policy as follows. First, cooperation should be customized based on country-specific gaps, with the content and form of cooperation differentiated according to income levels and AI readiness. Second, cooperation should focus on priority areas in which Korea has comparative strengths. Korea should prioritize its areas of strength and develop cooperation projects aligned with the partner country’s level of development, while projects should be designed to contribute simultaneously to partner countries’ SDG achievement. At the same time, cooperation grounded in shared values−such as AI safety, data security, and personal data protection−should be pursued. Third, both bilateral and multilateral cooperation frameworks should be considered in parallel. While AI diffusion serves bilateral interests, it also requires participation in and contributions to multilateral frameworks, given considerations of objectives and scale. Accordingly, Korea’s active role in multilateral cooperation mechanisms is essential, and collaboration with like-minded partners will be particularly important in3 this process.

Over the past two decades, China has systematically promoted the semiconductor industry as a central pillar of its national development strategy. In recent years, this effort has intensified as technological self-reliance and supply-chain security have been elevated to core national priorities. Against the backdrop of escalating U.S. export controls and heightened geopolitical tensions, China has accelerated investments in advanced semiconductor technologies while seeking to reduce structural dependence on foreign suppliers.

China’s semiconductor development strategy can be characterized by three interrelated features. First, it is underpinned by strong state-led industrial policies. Through major strategic frameworks such as Made in China 2025 and the Guidelines for the Development of the National Integrated Circuit Industry, semiconductors have been designated as a strategic core industry. These initiatives have been supported by extensive policy instruments, including large-scale fiscal support, tax incentives, and systematic talent development and recruitment programs. Second, China has pursued the localization of critical technologies with the explicit objective of achieving technological self-sufficiency. Particular emphasis has been placed on increasing domestic production capacity in semiconductor equipment and materials, where reliance on foreign technologies has historically been most pronounced. Third, from a medium- to long-term perspective, China has sought to establish China-centered industrial clusters amid the ongoing reconfiguration of global semiconductor supply chains, thereby fostering a domestically anchored semiconductor ecosystem.

Despite these sustained policy efforts, China’s semiconductor industry remains heavily dependent on foreign technologies in several critical process stages. This dependency is especially evident in extreme ultraviolet (EUV) lithography equipment, advanced electronic design automation (EDA) tools, cutting-edge manufacturing equipment, and specialized materials. These structural vulnerabilities have become primary targets of U.S.-led export control measures. In particular, the strengthened restrictions implemented since October 2022 have imposed material constraints on China’s ability to produce advanced semiconductors. Empirical evidence indicates that China’s semiconductor imports from the United States declined by approximately 31 percent following the implementation of these measures—a contraction more than three times larger than that observed for non-sanctioned items.

The main policy effects identified through Event Study and Difference-in-Differences (DID) analyses can be summarized as follows. First, U.S. export controls have functioned not as a temporary shock but as a persistent structural constraint, with their impact concentrated on key process inputs such as high-performance chips, high-purity materials, and advanced manufacturing equipment. Second, although import substitution through alternative sourcing channels initially mitigated some of the supply disruptions, these channels have become increasingly constrained over time. Third, the coordinated export controls imposed by the United States and its allied countries have exerted sustained pressure on China’s capacity to secure alternative supply sources, further tightening supply-chain bottlenecks.

Importantly, the policy effects have exhibited a dynamic temporal pattern rather than a one-off disruption. Semiconductor imports fell sharply in 2022, showed partial adjustment in 2023, and declined again in 2024, suggesting that export controls have generated cumulative and reinforcing constraints rather than transitory effects. This pattern underscores the structural nature of the restrictions and highlights the growing difficulty China faces in sustaining advanced semiconductor production under an increasingly restrictive external environment.

From an academic perspective, this analysis contributes to the existing literature by providing quantitative evidence for policy effects that have often been discussed primarily in qualitative terms. By empirically tracing both the magnitude and temporal evolution of import reductions, the study offers a more rigorous assessment of how export controls reshape semiconductor supply chains over time.

Several policy implications emerge from these findings. Korea faces both risks and opportunities as China advances its semiconductor self-reliance strategy amid global supply-chain reconfiguration. In the short term, Korea may benefit from opportunities to supply advanced equipment and materials to China, partially filling technology gaps created by U.S. export restrictions. In the longer term, however, Korea must simultaneously safeguard its proprietary technologies and strengthen supply-chain resilience. This calls for a dual strategy that combines the strategic utilization of production bases in China with reinforced domestic capabilities aimed at sustaining technological leadership.

In conclusion, China’s semiconductor industry is undergoing rapid transformation under the combined pressures of external constraints and internal strategic realignment. As competition and selective cooperation among major economies reshape the global semiconductor landscape, Korea stands at a critical strategic juncture. Carefully calibrated and balanced policy responses will be essential to maximize emerging opportunities while effectively managing long-term risks. This study provides an empirically grounded framework to inform such strategic decision-making, offering deeper insights into the evolving structure of global semiconductor competition than those available in previous research.

Brazil has become one of the most attractive partners, especially in light of recent changes in the global environment. Rising uncertainty and instability call for the need to diversify trading partners. As of 2024, Brazil’s GDP has reached 2.2 trillion US dollars. Brazil ranks as the world’s seventh-largest economy, following the United States, China, the European Union, Japan, India, and the United Kingdom. Despite its significance, however, relatively little research has been conducted in Korea to investigate and understand the Brazilian economy. This report aims to analyze Brazil’s consumer market through the lens of the informal economy in particular. The informal economy refers to economic activities that would be included in GDP if monitored by the government but are not officially documented due to institutional or regulatory contexts. The size of Brazil’s informal economy is so large that understanding it is essential to understanding the Brazilian economy in depth. More specifically, the informal economy share in Brazil amounts to 33.4% of GDP. This figure is significantly high for a country with a decent level of GDP per capita compared to other Latin American countries.

This report exclusively investigates three features of the Brazilian economy, all of which are closely related to the informal economy. First, the low-income and low-wealth groups experience severe and the poverty rate is high. Both income and wealth mobility are low. Inequality is pronounced not only in a static sense but also in a dynamic sense. Second, access to financial intermediaries is limited for both low-income (low-wealth) households and small and medium-sized enterprises (SMEs). As of 2025, the Selic rate is 15%. Borrowing rates for households and SMEs are particularly high, as household borrowing rates typically exceed 50% annually. Although fintech has recently made access more feasible, demand for cash transactions still remains high. Lastly, informal labor contracts are prevalent. Approximately 37.9% of total employment is informal.

Furthermore, Brazil is well known for its inequality and polarization. Although the income Gini coefficient has declined over the last 30 years, it remains high, exceeding 50. The top 10% income share in Brazil is 39.1%, which is higher than the Latin American average of 34.2%. Meanwhile, the bottom 10%’s income share is 1.4%, which is relatively lower than the Latin American average of 1.7%. Brazil also demonstrates a high degree of urban concentration, contributing to heightened regional inequality.

Using a simplified macroeconomic model, this report provides a theoretical foundation for the underlying mechanisms through which the informal economy exacerbates the above-mentioned features. Limited access to financial intermediaries and the prevalence of informal labor worsen inequality and generate a poverty trap. Low returns on assets for wealth-poor households raise their marginal propensity to consume, leading to low savings. As the informal economy grows, capital accumulated in the formal sector shrinks and the rate of return rises. Wealthy households benefit from the high returns, and polarization widens on the right tail of the wealth distribution. The model quantitatively evaluates the potential gains that the Brazilian government could achieve through implementing policies aimed at improving financial accessibility.

This report examines Brazilian policies that partially mitigate the informal economy. Of course, few policies are designed to directly target the informal economy. However, the Brazilian government has implemented numerous policies to support low-income and low-wealth households, improve financial accessibility nationwide, secure tax revenues through formalization, and increase aggregate productivity through worker education. All of these policies are closely related to the informal economy.

Next, the report analyzes consumption patterns among Brazilian domestic consumers. Due to Brazil’s high level of income inequality, it is common practice to classify households into five groups—A, B, C, D, and E. With Group A representing the highest-income class and Groups D and E representing the lowest-income classes, these polarized consumers tend to exhibit distinct consumption patterns. The report also presents case studies of marketing strategies targeting low-income and low-wealth households as well as top income earners. In general, expanding the consumer base and improving financial inclusion play key roles in low-income markets. Regardless of income level, consumers rely heavily on the established images of companies.

Finally, we suggest several broad policy implications based on the observations discussed above. Due to the Brazilian government’s multifaceted policy efforts related to the informal economy, there is substantial potential for public-sector cooperation between Korea and Brazil. Brazil has recently established the Ministry of Entrepreneurship, Microenterprise, and Small Business (MEMP), signaling a strong policy commitment to supporting SMEs. In this context, cooperation through Korea’s Ministry of SMEs and Startups and the Knowledge Sharing Program (KSP) appears promising. Bilateral programs could also be pursued within the framework of the Global Alliance Against Hunger and Poverty, which was launched under Brazil’s leadership. Moreover, due to the polarized nature of Brazil’s domestic consumer market, Korean firms could benefit from entering the Brazilian market through strategies such as product differentiation and image-based marketing.

Executive Summary

Contributors

Chapter 1. Introduction
1. Background
2. Objective

Chapter 2. The Historical Evolution, Achievements, and Collaborative Dynamics of GTI
1. Overview of GTI: Historical Background and Evolution
2. Achievements and Limitations
3. Looking Ahead: Balancing Achievements and Challenges

Chapter 3. Rationale for Legal Transition
1. Previous Discussions on Legal Transition
2. Environmental Analysis

Chapter 4. Comprehensive Frameworks and Strategic Suggestions for Legal Transition
1. Comparative Analysis of Regional Cooperation Models and Implications
2. Strategic Plan for Legal Transition

Chapter 5. Perspectives and Evaluations of Member Countries
1. China
2. Mongolia
3. South Korea
4. Russia

Chapter 6. Conclusion
1. Summary of Findings
2. Policy Implications
3. Strategic Directions for GTI’s Institutional Transformation

References

This study examines the current status of the Greater Tumen Initiative (GTI) by reviewing its establishment background and historical evolution, major activities and achievements, and the development of internal discussions on its transition into an international organization. It assesses the necessity and feasibility of GTI’s legal transformation. Over the past three decades, GTI has played a meaningful role as a platform for dialogue and cooperation in Northeast Asia; however, the absence of an independent international legal personality has imposed structural constraints on project implementation and resource mobilization. To overcome these limitations, GTI member states have formed a broad consensus in principle on the need for legal transformation, and past discussions have already laid a substantial institutional and legal foundation for such a transition. Drawing on comparative analyses of regional development and cooperation frameworks similar to GTI−such as APEC, ACMECS, CAN/CAF, and ADB−this study derives policy implications and proposes a concrete, step-by-step legal, institutional, and policy roadmap for GTI’s transition into an international organization. In particular, through joint research with participating institutions of the GTI Research Institute Network, the study synthesizes member states’ positions and perspectives on the legal transition, and explores cooperative approaches to overcoming differences and building consensus. In this respect, the study makes a significant contribution to advancing practical pathways toward GTI’s institutional transformation.

Amid intensifying U.S.-China strategic competition, the expansion of economic security legislation, and persistent geopolitical risks, global supply chains are being reorganized beyond the traditional logic of cost efficiency toward secure procurement, resilience, and technological and industrial security. Supply chains are no longer merely networks of production and trade; they have become strategic arenas in which technology, standards, data, industrial policy, and external economic policy intersect. In this context, China has emerged as a central variable in global supply chain restructuring, as it combines a large domestic market and manufacturing base with state-led industrial strategies and external initiatives such as the Belt and Road Initiative, the Digital Silk Road, and the Green Silk Road.

This study examines China’s supply chain influence in the fields of the green transition, the digital transition, and biopharmaceuticals. Rather than assessing China’s influence through a single indicator or aggregate trade volume, it analyzes how China’s policy direction and industrial capacity are reflected in actual trade structures, product- level competitiveness, value chain positions, and major economies’ dependence on China. To this end, the study constructs product groups at the HS six-digit level by combining international product classifications with the U.S. critical supply chain framework under Executive Order 14017. It then uses UN Comtrade data to examine export and import values, world market shares, export destinations, import dependence on China, revealed comparative advantage (RCA), and the trade specialization index (TSI).

Chapter 2 analyzes China’s influence in green transition supply chains. China has anchored its green transition strategy to the goals of carbon peaking by 2030 and carbon neutrality by 2060, while strengthening its industrial base in renewable energy, electric vehicles, and batteries. In 2024, China’s newly installed renewable energy capacity reached 373 GW, and its cumulative installed capacity reached 1,889 GW, accounting for about 56 percent of China’s total power capacity and roughly 64 percent of global newly installed renewable energy capacity. Trade analysis shows that China’s influence is selectively concentrated in midstream and downstream manufacturing product groups such as batteries and storage devices, clean mobility, and renewable energy equipment. By contrast, its role in critical minerals is better understood as that of a processing and manufacturing hub that imports and refines minerals for use in batteries, electric vehicles, and renewable energy equipment, rather than as a dominant upstream mining country.

Chapter 3 examines China’s digital transition policies and its position in ICT supply chains. China has strengthened its digital economy through data governance reforms, the establishment of the National Data Administration, the expansion of digital infrastructure, the development of an integrated data market, and state-led projects such as the “East Data, West Computing” initiative. The trade analysis indicates that China’s ICT supply chain influence is concentrated not in raw materials but in midstream and downstream manufacturing and equipment. China maintains a strong export hub position in finished ICT goods such as computers, communication equipment, and consumer electronics, while its competitiveness in electronic components and semiconductor-related products is gradually improving. However, the TSI for electronic components, including semiconductors, remains negative, indicating that China still maintains a net import structure in these areas. China’s digital supply chain influence therefore has a dual character: strong competitiveness in finished goods and equipment, combined with continued catching up in components and semiconductors.

Chapter 4 analyzes China’s biopharmaceutical strategy and its influence in biopharmaceutical supply chains. China has pursued manufacturing self-reliance, innovation capacity, and global cooperation through the Bioeconomy Development Plan, pharmaceutical regulatory reforms, support for innovative drugs, and greater opening in biopharmaceuticals. The analysis shows that China’s influence is stronger in upstream raw materials and intermediate goods than in finished pharmaceutical products. Major economies’ dependence on China for finished products generally remains in the single digits, while dependence on China for APIs, bulk drugs, and biopharmaceutical- related intermediate goods is considerably higher — reaching 20 to 30 percent for APIs and bulk drugs in Korea, ASEAN, and Latin America, and 50 percent or above for related intermediate goods in several major economies. At the same time, China is becoming an increasingly important supplier of innovation pipelines, as the value of license-out deals by Chinese pharmaceutical firms exceeded USD 5 billion in 2024 and approached USD 6.6 billion in the first half of 2025.

Chapter 5 synthesizes the findings and argues that China’s supply chain influence is not comprehensive or uniform, but selective and concentrated in specific sectors and stages of the value chain. In the green transition, China functions as a critical minerals processing hub and a midstream and downstream manufacturing hub for batteries, electric vehicles, and renewable energy equipment. In the digital transition, China remains a major export hub for finished ICT goods and equipment while continuing to catch up in components and semiconductors. In biopharmaceuticals, China’s structural influence is stronger in APIs, bulk drugs, and related intermediate goods than in finished products. Global supply chain restructuring is therefore more likely to proceed through product- and stage-specific risk management, supplier diversification, minimum domestic or regional production capacity, strategic stockpiling, and China-plus-N diversification strategies, rather than through comprehensive decoupling from China- centered supply chains.

For Korea, these findings suggest the need for differentiated strategies by sector and value chain stage. In the green transition, Korea should strengthen supply chain monitoring, diversify procurement of key materials and components, and expand cooperation in mineral procurement, refining, and material processing. In the digital transition, Korea needs to manage geopolitical risks in sensitive areas such as semiconductors, AI, and data infrastructure, while selectively identifying areas for cooperation, including green digital infrastructure, digital ODA, and joint entry into third-country markets. In biopharmaceuticals, Korea should address upstream bottlenecks by diversifying sources of APIs, intermediates, and related intermediate goods, while strengthening regulatory and quality capabilities. With the inclusion of biosecurity-related provisions in the U.S. FY2026 National Defense Authorization Act (NDAA), Korea should also approach biopharmaceutical supply chain policy as a strategic domain that integrates economic security, regulatory response, market access, industrial competitiveness, and supply chain resilience.