The study examines methodologies for quantitatively analyzing the impact of global supply chain fragmentation and applies these approaches to scenarios involving critical minerals. It identifies two primary analytical approaches: microeconomic and macroeconomic.

Microeconomic methods provide detailed insights at the item or firm level but face challenges due to limited access to specific supply chain data. Macroeconomic methods, while suitable for industry- or national-level analysis, often rely on unrealistic assumptions when applied to item-level fragmentation. Despite the significant macroeconomic effects of disruptions in critical supply chains, existing item-level analysis techniques struggle to capture these impacts accurately. For instance, efforts to link item-level analysis with GDP using linear programming or inoperability input-output analysis often encounter limitations due to rigid assumptions about input-output structures. High-tech items, in particular, pose challenges due to their complex supply chain interdependencies and their significant influence on final production.

To address these issues, the study proposes an integrated methodology combining machine learning techniques for microeconomic analysis with the OECD METRO model for macroeconomic evaluation. This approach considers key issues and transmission channels identified in previous research. The study also reviews critical mineral management policies in major economies such as the United States, European Union, China, and Korea. The United States identifies critical minerals essential for economic and national security through legislative measures like the 2020 Energy Act and has implemented strategies to strengthen North American supply chain resilience. The European Union has updated its critical raw materials list every three years since 2008 and enacted the Critical Raw Materials Act in 2024 to expand production capacity and enhance international cooperation. China, despite lacking a clear legal definition of critical minerals, strengthens its resource management through export controls and cooperation with resource-rich countries. Korea designated 33 minerals as critical through its 2023 Critical Minerals Securing Strategy, prioritizing 10 strategic minerals essential for industries like electric vehicles and semiconductors. However, Korea’s reliance on imports for most critical minerals highlights its vulnerability.

The study conducts a vulnerability analysis of Korea’s critical mineral supply chains using indicators such as the Trade Specialization Index (TSI) and Herfindahl-Hirschman Index (HHI). It identifies high global supply chain concentration in minerals like cobalt, lithium, and neodymium, which are crucial for secondary batteries and electric vehicles. To assess geopolitical risks, it examines import trends from China across seven countries from 2017 to 2023. Sharp declines in imports of gallium, graphite, and rare earth elements suggest potential disruptions due to trade conflicts or export controls.

The study employs a Dual-Stage Attention-Based Recurrent Neural Network (DA-RNN) model to predict the impact of critical mineral fragmentation on Korea’s exports of key items like batteries and semiconductors under three scenarios involving germanium, graphite, and rare earth elements. The results show significant decreases in export values across all scenarios. For example, restrictions on germanium imports led to a 3.9% decline in battery exports, while rare earth element shortages caused a 10.8% drop.

Using the OECD METRO model, the study evaluates the macroeconomic impact of critical mineral fragmentation under two approaches: direct analysis of import disruptions (Approach 1) and integration of microeconomic results into macroeconomic simulations (Approach 2). The findings indicate that germanium fragmentation could reduce Korea’s real GDP by 0.15%, while graphite and rare earth element disruptions could lead to decreases of 0.14% and 0.89%, respectively.

Based on these findings, the study recommends strengthening supply chain monitoring systems by integrating fragmented platforms across government agencies and establishing a centralized control tower. It also suggests diversifying procurement strategies, promoting R&D for substitute materials, and supporting SMEs through digital-based supply chain management platforms. Additionally, it emphasizes harmonizing policies with major economies to prevent over-securitization and redundant investments while expanding international cooperation for joint mineral exploration and development projects.

The importance of tariff measures in recent international trade has been highlighted again with the universal tariffs and reciprocal tariffs of the second Trump administration in the United States, as well as the retaliatory tariffs from trade partners. Interest in their economic effects is growing day by day. To properly analyze these economic effects, it is essential to accurately estimate the tariff elasticity of trade. This study comprehensively analyzes the main content of previous researches on the tariff elasticity of trade through a literature review, presenting various theoretical grounds and analytical methodologies. We applied these to Korea’s 2014 import clearance data to empirically estimate tariff elasticity. The main contents and analysis results of this study are as follows.

First, this study introduces the basic theoretical model of Fontagné et al. (2022) and derives an equation to estimate tariff elasticity. According to this, the tariff elasticity of trade can be estimated by the elasticity of substitution between items. If a consumer can easily substitute another product when the tariff of a specific product rises, the import of that product is expected to decrease more actively.

Second, this study suggests the possibility of developing a more realistic model based on the basic theoretical model of Fontagné et al. (2022). Particularly, the development of theoretical models and empirical analysis strategies that appropriately reflect other factors affecting tariff elasticity in addition to the elasticity of substitution between items is necessary. These suggestions can be categorized into 1) the level of hierarchy in the CES utility function, 2) consideration of the export supply function, 3) the possibility of partial pass-through, 4) consideration of other trade costs, 5) resolution of endogeneity issues, and 6) consideration of the customs valuation.

Third, this study investigated several empirical analysis studies on the tariff elasticity of trade. The results showed that the estimated value of tariff elasticity of trade ranged from an absolute value of 2.5 to 5.1 on average, but the variance was quite large depending on the sample, data characteristics, and analysis methodology. By country characteristics, it was confirmed that the greater the market dominance of the importing country, and when the exporting country is a developed country, the smaller the tariff elasticity of trade. Also, tariff elasticity was relatively large when there was a bilateral trade agreement, but smaller in cases of past colonial relationships, large price gaps, or great geographical distances. By industry and item characteristics, homogeneous and standardized products such as agricultural and mineral products had higher tariff elasticity, while heterogeneous products like machinery and textiles had lower tariff elasticity. In terms of industrial structure, the higher the use and diversity of intermediate goods, the greater the productivity differences between items within the industry, and the more products traded on regular exchanges, the higher the tariff elasticity of trade. Regarding market competitiveness and structure, the more intense the market competitiveness, the higher the tariff elasticity, but items with larger profit margins had lower tariff elasticity. It was also confirmed that various non-price competitive factors such as technological advantages and brand awareness were important. By firm characteristics, tariff elasticity of trade was greater when strategic complementarity between firms was high but smaller when firm productivity was high. Regarding data characteristics, the finer the aggregation level of item classification, the greater the tariff elasticity appeared. It was also confirmed that the analysis period and scope, data source, and consideration of proxy variables could also affect changes in estimated tariff elasticity.

Fourth, this study applied these discussions to the quarterly HS 6-digit import clearance data of Korea in 2014 to estimate tariff elasticity. The empirical analysis methodology mainly considered the Poisson Pseudo- Maximum Likelihood (PPML) estimation based on the structural gravity equation. The empirical analysis results estimated the absolute value of tariff elasticity to be about 5 to 10, confirming it to be similar to existing previous studies. However, it was found that the estimated tariff elasticity significantly differed statistically depending on the aggregation unit of the product, and the pattern of difference varied according to the setting of fixed effects. By product characteristics, the tariff elasticity of consumer goods was the highest, followed by intermediate goods and capital goods. By product group, the tariff elasticity of homogeneous items such as mineral products was estimated to be very large with an absolute value of 10 or more, but statistically significant elasticity was not observed in some product groups such as stone and ceramics. To verify the robustness of the main analysis results, both the log-linear equation and asymptotic bias-corrected PPML estimation method were applied, but the analysis results were qualitatively similar and statistically significant consistently.

Based on these analysis results, this study draws the following implications. First, the government should manage and pay close attention to the elasticity of substitution between similar products when establishing tariff policies. In particular, since the elasticity of substitution varies by industry and item, tailored tariff policies that consider the characteristics and substitutability of each industry and item are necessary. Especially for homogeneous products like agricultural and mineral products, meticulous policy design is required as they are sensitive to tariff changes. Second, the government should consider various factors in addition to the elasticity of substitution when establishing tariff policies, including economic and political relations with trade partners, strategic behavior of related firms, and market competition structure. Comprehensive consideration of these variables becomes a prerequisite for the government to design more effective and sustainable tariff and response measures. Third, when estimating tariff elasticity as a basis for policy, the aggregation method of data is crucial. In particular, it is important to divide the data in detail by item rather than total data to design the correct policy. Fourth, in analysis methodology, appropriate fixed effects should be selected by fully considering the analysis purpose and data characteristics. Fifth, when establishing and evaluating trade policies, careful consideration of other trade costs, such as freight insurance rates, in addition to tariffs is necessary. Lastly, regarding empirical analysis techniques for estimating tariff elasticity of trade, it is proposed that the general PPML estimation method is a sufficiently reliable and valid approach for analyzing tariff elasticity.

Since the inauguration of Trump’s second term, U.S. trade policy has triggered profound changes in the global trading order. The United States, prioritizing the prevention of illegal immigration and drug trafficking as matters of national security, has implemented stringent trade measures such as the imposition of high tariffs and the renegotiation of bilateral agreements. These policies have amplified uncertainty across the external environment of Latin America, including Mexico and Brazil. The recent U.S. decision to impose a 50 percent retaliatory tariff on Brazilian products starkly illustrates the vulnerability of Latin American trade to policy volatility. Against this backdrop, the upcoming USMCA renegotiation in July 2026 is likely to become another critical variable for the region’s external relations and supply chain configuration.

Despite the rising geopolitical and geoeconomic importance of Latin America, the region remains relatively marginal within Korea’s trade strategy. Yet, the ascent of the Global South, the restructuring of supply chains, and the diversification of trade partners underscore Latin America’s growing strategic value and the urgency for Korea to pursue proactive and long-term policy responses.

In this context, Japan’s experience in Latin America provides meaningful insights for Korea. Japan has consolidated its presence by focusing on traditional manufacturing sectors such as automobiles, machinery, and chemicals, establishing dual hubs in Mexico and Brazil while simultaneously diversifying into markets such as Argentina and Chile. Japanese firms have strengthened localization strategies by responding proactively to policy changes, including Brazil’s “Mover” program and Mexico’s environmental regulations. In the resource sector, Japan has sought stable access to critical minerals such as lithium and copper through close government–business collaboration, supported by financial and policy instruments that helped mitigate risks.

This study investigates Japan’s industry- and period-specific entry cases and government support policies to derive policy implications for Korea’s Latin America strategy. The key recommendations are as follows:
First, strengthen government–business linkages to institutionalize supply chain restructuring support.

Second, emphasize reference-building at the initial stage of entry to establish a foundation for long-term growth.

Third, respond proactively to environmental and regulatory changes to build trust with local governments and turn compliance into a source of competitive advantage.

Fourth, maintain a Brazil–Mexico-centered strategy while expanding into Argentina, Chile, and Colombia to diversify regional risks.

Fifth, explore opportunities for joint ventures with Japan, particularly in strategic sectors such as minerals.

In sum, Japan’s experience highlights essential lessons for Korea to achieve stable and sustainable outcomes in Latin America under conditions of global trade uncertainty. Rather than merely replicating Japan’s approach, Korea should design tailored strategies that reflect the specific characteristics of Korean firms and the diverse demands of Latin American economies.

Executive Summary

1. Introduction

2. Data

3. The Model

4. Qualitative properties

5. Numerical Simulation

6. Conclusion

Appendix

References

Digital platforms have become central to modern economies, as consumers increasingly spend leisure time online and platform firms transform user engagement into economic value. This study develops a multi-country, multi-industry open economy general equilibrium model to analyze how web traffic—measured as visits to platform domains—can be converted into “data capital” through big data and AI algorithms and then used as a non-rival input for production and innovation.

To ground the analysis, we construct a new dataset that links domain-level web traffic to corporate ownership across countries. The evidence reveals sharp cross country differences in the geographic origin of users. U.S. platforms attract a strongly international audience, with domestic users accounting for less than one-third of visits on average. Chinese platforms are more domestically concentrated, though TikTok stands out as a global exception with a highly international user base. Korean platforms, by contrast, rely overwhelmingly on domestic users, with less than ten percent of traffic originating abroad. Comparing these patterns with international service trade statistics, we find that countries with higher shares of foreign users are systematically more active in exporting online services.

Qualitative analysis provides further insight into user behavior. Consumers allocate more time to a platform when they experience greater content satisfaction, which depends on both technological quality and country-specific content preferences. When the quality of foreign platform content improves, consumers reallocate time away from domestic platforms toward foreign ones. The extent of this shift is influenced by the elasticity of leisure demand, the substitutability across platforms, and the share of time already devoted to foreign platforms.

The general equilibrium model allows us to simulate counterfactual scenarios and evaluate policy-relevant outcomes. Reducing cross-border frictions to foreign content raises welfare in all countries, primarily through the expansion of content variety and the reallocation of consumer time, while leaving the broader industrial structure largely unchanged. Lowering barriers faced by foreign platforms, such as discriminatory digital services taxes, increases platform revenues, encourages consumers to spend more leisure time online, and strengthens investment incentives for domestic platforms. Although the immediate welfare gains are modest, the longer-run effects on intangible investment and innovation are more significant. Enhancing the productivity of platform R&D generates asymmetric effects by expanding platform activity in the innovating country and reducing it in the non innovating country, yet global welfare increases because users everywhere benefit from improved content quality and diversity.

Taken together, the findings highlight that the accumulation of web-traffic-based data capital is a central driver of platform growth. Policies that improve access to foreign content, the taxation of digital services, and foster innovation in platform R&D directly influence how consumer time is allocated and how platform firms invest in data-driven growth. For policymakers, the results suggest that lowering barriers to cross-border online activity can deliver substantial welfare gains, that digital taxation should be carefully designed to balance fiscal and innovation objectives, and that investment in platform R&D is essential for competitiveness in the global digital economy.

In sum, this study demonstrates that digital platforms thrive not only on technological progress but also on the ability to accumulate and deploy data capital derived from web traffic. Recognizing the economic role of data capital is crucial for designing effective policies in the digital era, where market access, taxation, and innovation shape the international competitiveness of platform industries.

Executive Summary 1. Introduction 2. The model 3. Quantitative analysis 4. Conclusion Appendix References

Recognizing changes in the global economic order and its severe dependency on foreign resources and technology, Europe is greatly invested in strengthening its economic security and further developing its industries. Consecutively, European governments have introduced policies to enhance the competitiveness of their advanced industries. This study identifies the status, strengths and weaknesses of European advanced industries, by examining the present conditions of advanced industries in Europe in terms of trade, R&D expenditure, and human resources, and also comparing the competitiveness in advanced industries with the US and China. Furthermore, it identifies the policy direction of the EU and the UK for advanced industries from the perspectives of promoting innovation and bridging the technological gap, expanding investment, and fostering a level playing environment. This study also reviews the key support policies and regulations for specific sectors in advanced industries, i.e., batteries, semiconductors, AI & digital industry, health & biotech, clean technology, and aerospace.

The following points were confirmed through this research. First, both the EU and the UK recorded trade deficits in items classified as high-tech industries, indicating extensive dependence on foreign sources in these fields. The EU’s R&D expenditure rate also turned out to be less than that of the US and China. While the number of jobs in advanced industries are likely to increase, the EU’s low projection for working-age population in the future indicates that this vacancy is not expected to be filled, unlike in the US and China. These statistics reaffirm the necessity and legitimacy of European policies aimed at enhancing competitiveness in the advanced industry. Second, the EU and the UK are pursuing multifaceted policies to strengthen competitiveness in advanced industries under the overarching goal of climate neutrality. The EU aims to meet more than 40% of its demand for climate-neutral technologies internally by 2030, seeking to reinforce clean-tech production capacity. Initiatives such as Horizon Europe, the Strategic Technologies for Europe Platform (STEP), and the EU Blue Card are being employed to address key challenges and labor and skill shortages. In accordance with its Modern Industrial Strategy (2025), the UK is planning to actively invest in key sectors - automobiles, aerospace, biotech, and clean energy - to stabilize supply chains. In terms of utilization of various funds, the EU is actively promoting Public-Private Partnerships (PPP) projects and investment guarantees via InvestEU, while the UK is significantly increasing investment to strengthen its industrial ecosystem. Furthermore, both the EU and the UK are working to foster fair competition and to expand international cooperation while building internal supply chains and pursuing supply chain diversification. Third, in key strategic industries, both the EU and the UK are simultaneously pursuing large-scale investments and regulatory reforms to drive green and digital transitions along with technological sovereignty. In the batteries sector, the EU is continuously investing in battery manufacturing within Europe, while advancing battery R&D and recycling systems. Meanwhile, the UK is focusing more on technological development and design cooperation. As for the semiconductors sector, the EU is aiming to engage across the entire value chain to address manufacturing vulnerabilities. Considering how the sector is so far dominated by Asian countries, establishing a strong position in batteries manufacturing remains challenging. However, the UK is maintaining a niche market strategy focusing on R&D, design, and IP. In the digital industries sector, such as AI and quantum technology, both the EU and the UK are pioneering regulatory and normative frameworks to challenge US-China technological leadership. Their policies target technological sovereignty and competitiveness through R&D and infrastructure development, with accompanying efforts to implement policies addressing carbon neutrality in the energy-intensive infrastructures. In the health and biotech sectors, the EU policy centers on supply chain stabilization, enhancing internal manufacturing capacities, regulatory streamlining, expanding clinical trial infrastructure, and strengthening the security of critical pharmaceutical supply chains. Clean energy technologies are being promoted through the Net-Zero Industry Act and the Clean Industrial Deal, aimed at strengthening local manufacturing capabilities for eight strategic technologies - including hydrogen, batteries, carbon capture and storage (CCS) - while reducing reliance on non-European countries. Large-scale joint investments and infrastructure development under the IPCEI initiative are actively in process in the hydrogen segment. Meanwhile, the EU maintains a strong position in the aerospace industry sector, mainly thanks to Airbus, while concurrently advancing research on sustainable aviation fuels (SAF) and improving aircraft efficiency. In space, major projects like Galileo and Copernicus are underway, and the EU Space Act has been proposed to secure global standard-setting leadership.

The key implications for Korea’s strategic engagement with the EU and the UK’s advanced industry policies can be summarized in three main points. First, in terms of investment, Korea should strengthen R&D and equipment investment in key sectors such as batteries, semiconductors, AI and quantum technology, while actively leveraging its associate membership in Horizon Europe to enhance networks and market access opportunities. Second, to improve the investment environment, Korea needs to introduce converged regulatory sandboxes and streamline approval procedures, as demonstrated by the EU’s One-Stop Shop model, to foster a competitive industrial ecosystem. Third, for broader cooperation, Korea may consider solidifying its global position in positive technology exposure and standardization processes by participating in public procurement projects and the Korea-EU digital, green, and security partnerships. It should also mitigate supply chain risks by easing upstream dependencies and strategically practicing mid- and downstream network collaboration. Furthermore, it is crucial to proactively respond to ESG regulations (such as the CSDDD) and solidify the foundation for long-term cooperation with Europe through talent exchange and joint research.

Carbon neutrality, as a long-term goal of the international community, can only be achieved through innovation in climate technologies. The scale of climate finance and clean energy investments has continued to grow, with new markets recently emerging through the convergence of climate technologies with other advanced technologies such as artificial intelligence (AI). In this context, this study focuses on the growth and global expansion of startups, which are key economic players capable of driving innovation in climate technologies. In the study, a climate tech startup is defined as an unlisted company established within the past 10 years that has innovative ideas or business models related to technologies contributing to greenhouse gas reduction or climate change adaptation. Based on this definition, the study examines not only the roles of government support in leading countries but also success stories of promising climate tech startups. It also analyzes the ecosystem for climate tech startups and the effectiveness of R&D support programs in Korea, ultimately deriving policy implications for Korea.

Chapter 2 analyzes the key strategies of major countries and promising climate tech startups. Across all the countries reviewed, governments are increasing financial support, encouraging private investment, and supporting networking hubs to connect climate tech startups with each other and other partner companies. In particular, Germany operates large-scale and long-term funds such as the DeepTech & Climate Fund (DTCF), targeting startups at the growth stage rather than those in the early phase. Japan offers incentives, including tax deductions, to encourage collaboration between startups and large corporations as well as investment from large corporations. On the other hand, the UK and the US, where the climate tech markets are largely driven by the private sector, operate specialized institutions for high-risk, high-reward technologies such as ARIA and ARPA-E. The UK promotes the commercialization of climate technologies through regional clusters and innovation networks, including Catapults and Living Labs. The US supports climate tech startups through initiatives like the Energy Program for Innovation Clusters (EPIC), which funds organizations within regional innovation ecosystems. Finland, where both the public and private sector are actively engaged, encourages startups to expand overseas from the early stages of their establishment.

Promising climate tech startups around the world are growing and expanding their businesses into global markets by leveraging various government support programs, attracting private investment, engaging in technology collaborations and partnerships, and capitalizing on the capabilities of their founders. For example, companies such as TBM and Sila Nanotechnologies have successfully utilized a range of government programs from the R&D stage to commercialization for their growth and international expansion. Climeworks and Ascend Elements have secured some of the largest investments in the industry by demonstrating operational success with facilities applying their own technologies and by leveraging government matching funds. Sunfire, Clean Planet, and Coolbrook have achieved successful demonstration and commercialization through strategic partnerships with corporations, universities, and research institutions. Meanwhile, Carbon Clean and 44.01 have developed distinctive business models driven by the leadership and technical expertise of their founders.

Chapter 3 explores the ecosystem and enabling environment for climate tech startups in Korea, along with an analysis of the effectiveness of government R&D programs. Climate tech startups in Korea account for only approximately 5% in terms of both number and total investment scale as of the 2015-2024 period. Over 70% of the total investment was concentrated in the early stages of investment (Series A and below), and the pace of investment attraction remains relatively slow. Notably, government support has led the growth of startups, while the investment shares of venture capital (VC) firms and corporate venture capital (CVC) entities remain comparatively low. Policies and institutional support for climate tech startups primarily focus on financial assistance and the development of a startup ecosystem. Through financial mechanisms such as the Climate Technology Fund, the government aims to stimulate private investment while strengthening the roles of technology demonstration platforms and regional innovation clusters including Green Convergence Clusters. In addition, programs supporting global expansion, such as an initiative to link the Creative Technology Solution (CTS) and Tech Incubator Program for Startup (TIPS), are recently being implemented.

In order to evaluate the effectiveness of the Korean government’s support for climate technology development, the study analyzed the five-year outcomes of R&D support programs implemented between 2016 and 2018. The analysis focused on major climate technologies, including renewable energy, energy efficiency, and hydrogen and ammonia utilization technologies, selected based on their potential for emission reduction and trends in national R&D investment. An AI-based deep learning classification model was used to identify participants in major climate technology R&D support programs. Propensity Score Matching (PSM) and Difference-in-Differences (DID) methods were then used to estimate the impact. The results indicate that the R&D support programs had a positive effect on the financial performance of both startups and small and medium-sized enterprises (SMEs), with a notably stronger and more sustained impact observed in startups compared to SMEs. However, innovation outcomes showed a temporary increase only among SMEs, whereas social outcomes such as job creation were not statistically significant.

Based on these findings, the study suggests policy directions necessary to effectively support climate tech startups in Korea. These include general strategic directions and stage-specific support strategies tailored to the R&D, demonstration, and growth/scale-up phases. Detailed implications for each are discussed below.

Above all, it is crucial to enhance the understanding of climate technologies while ensuring the continuity and consistency of policy frameworks. Achieving this objective requires adopting a balanced and comprehensive perspective on climate technologies. Moreover, it is important to recognize that the perceptions of firms and investors are likely to shift only when there is a credible assurance regarding the long-term sustainability of government policies. The positive impacts of major climate technology R&D programs identified in this study further underscore the importance of sustained support for climate tech startups.

By stage of technology development, the first priority in the R&D phase is to assess whether technology support adequately addresses the integration of different technologies and market demand, and to strengthen the role of universities. Evaluating whether existing policies sufficiently foster technological innovation through convergent approaches is crucial. From a market demand perspective, a detailed analysis should be conducted to identify which technologies are likely to attract significant investment incentives at specific points in time, and this information should be effectively utilized. In addition, measures to enhance incentives for university-based startup activities and collaborative research with external partners should be considered.

Second, in the demonstration phase, it is important to encourage early-stage startups to pursue global expansion and to support regional networks. Given that the Korean economy has high export dependency and a small climate technology market, overcoming these limitations requires strategies that promote consideration of overseas market entry from the initial stage of idea development, similar to the Finnish model. Furthermore, strengthening the role of regional living labs and facilitating the adoption of technologies validated within the region at relatively low cost should also be prioritized.

Finally, in the growth and scale-up phase, it is necessary to expand investment incentives for climate technologies and to support the strengthening of partnerships between firms. It is recommended that tax incentives for climate technology be introduced or enhanced to encourage participation from a diverse range of private investors. In addition, policy mechanisms should be developed to attract investment from well-capitalized firms and corporate venture capital (CVC) entities. For startups seeking global expansion, efforts to facilitate strategic partnerships with local companies in target markets should be further strengthened.

Since Russia’s invasion of Ukraine, the foreign policy orientation of Northern European countries, including Sweden and Finland, as well as the three Baltic States—Estonia, Latvia, and Lithuania—has undergone significant changes. Sweden and Finland, which had historically maintained a position of neutrality, joined NATO in 2023 and 2024, respectively. These developments, along with broader regional concerns regarding geopolitical instability and security, have contributed to the adoption of policies aimed at reducing political and economic dependence on Russia.

The Baltic States, in particular, are actively diversifying their external cooperation channels across key sectors such as energy, trade, and investment. This trend aligns with the European Union’s REPowerEU strategy, which since 2022 has encouraged member states to reduce reliance on Russian fossil fuels—especially pipeline natural gas—through the expansion of liquefied natural gas (LNG) imports and the development of alternative energy sources. In addition to the energy sector, cooperation with Russia has declined across a wide range of industries, including electronics, machinery, agriculture, food, logistics, and maritime shipping. Concurrently, economic and strategic partnerships with the EU and the United States are being actively expanded.

The defense and security sectors are also experiencing structural change. With Sweden and Finland’s accession to NATO and increased security needs among the Baltic countries, cooperation in defense production, procurement, and exports is expanding. South Korea has already enhanced its defense industry presence in Central and Eastern Europe, most notably in Poland, and similar opportunities are emerging in Northern Europe and the Baltic region. These countries are also positioning themselves as key participants in Ukraine’s reconstruction process, with high-level policy discussions—including international conferences—actively ongoing.

In response to this shifting, the South Korean government is broadening its engagement through various initiatives, including increased grant assistance for Ukraine’s recovery, the strategic use of the Economic Development Cooperation Fund (EDCF), and the reinforcement of institutional and local cooperation networks. The Baltic States, having undergone their own transitions from former Soviet republics to EU member states, provide valuable reference points for Ukraine’s post-war reconstruction and potential EU accession. This creates opportunities for enhanced Korea–Baltic cooperation in sectors such as defense, energy, digital technology, and logistics.

Recent shifts in Northern Europe and Baltic States policies toward Russia reflect a broader realignment in international partnerships. While each country varies in its approach—ranging from assertive responses by Finland and Lithuania to more moderate adjustments in Estonia and Latvia—public attitudes toward Russia have become increasingly critical since Russia’s invasion of Ukraine, and this has been reflected in concrete policy decisions in both the political and economic domains.

These policy shifts are not short-term reactions, but rather are evolving into long-term strategies for external cooperation. Nevertheless, the full replacement of previously existing cooperation networks remains an ongoing challenge, underscoring the need for new, stable partnerships. In this context, Europe—with its high purchasing power and policy alignment with democratic economies—offers considerable potential for Korean companies seeking to expand their presence.

This study examines the evolution of anti-Russia policies in Northern Europe and the Baltic States, analyzes changes in the regional demand for international economic cooperation, and identifies strategic implications for South Korea. In addition to a literature review, the study incorporates qualitative insights obtained through field research, expert consultations, and engagement with the Embassy of the Republic of Latvia to the Republic of Korea. Particular attention is given to the defense and infrastructure sectors, where future cooperation models may be developed. With the support of the Embassy of the Republic of Latvia to the Republic of Korea and the Investment and Development Agency of Latvia (LIAA), fieldwork was conducted in Riga from April 21 to 25, 2025, during which the research team carried out policy interviews and expert discussions to examine the trajectory of anti-Russia strategies in the Baltic States and explore the potential for expanding Korea–Baltic cooperation, including opportunities for Korean defense industries in local markets.

Based on this analysis, the study presents the following four policy recommendations: 1) Expand South Korea’s EU cooperation framework to include Northern Europe and the Baltic region; 2) Identify strategic industries aligned with regional characteristics and development priorities; 3) Pursue integrated projects that address cross-national needs across the five countries; and 4) Develop mechanisms for joint participation in large-scale European initiatives through strengthened bilateral and multilateral partnerships.

Korea and Japan normalized diplomatic relations with the signing of the Treaty on Basic Relations on June 22, 1965. In 2025, the two nations mark the 60th anniversary of this normalization. Over the decades, both countries have developed their relationship through active exchanges and cooperation in politics, economics, society, and culture, underpinned by the shared values of liberal democracy and a market economy. However, historical disputes—such as the issues of wartime “comfort women” and forced labor, visits by Japanese officials to the Yasukuni Shrine, and territorial disputes over Dokdo (Takeshima in Japan)—remain unresolved. These tensions continue to negatively affect broader cooperation.

Against this backdrop, this study focuses on envisioning a future- oriented relationship. This concept emphasizes overcoming historical entanglements that hinder progress on cooperative agendas. By considering changing circumstances surrounding bilateral ties, it presents a long-term vision for Korea–Japan relations looking toward 2050, based on comprehensive analysis across various fields.

1. Diplomacy and Security: Future Vision 2050

Korea and Japan must establish themselves as responsible partners in defending democracy and a rules-based order, while jointly shaping a regional multilateral security architecture. In the context of U.S.–China strategic competition, both countries should take on proactive roles as designers of world order working to prevent war. Key measures include: Building early warning systems, Enhancing operational information- sharing technologies, Expanding public diplomacy for mutual understanding, and Strengthening trilateral Korea–U.S.–Japan cooperation to ensure sustained constructive U.S. engagement.

Looking ahead, if conditions emerge for North Korea to rejoin the international community and pursue economic development, Korea must already have a clear mid- to long-term strategy of proactive engagement. Japan’s role would be critical in this process. Coordinated engagement by Seoul and Tokyo would benefit both countries, requiring the establishment of a cooperative framework. Proposals include creating a Northeast Asia Development Bank to support North Korea’s reform, opening, and infrastructure development, serving as an institutional framework to manage the involvement of multiple state actors.

On energy and climate issues, Korea and Japan should deepen cooperation to strengthen energy security and respond to the climate crisis. This includes joint LNG procurement and stockpiling systems, collaboration on Alaska LNG projects, and nuclear cooperation such as securing enriched uranium supplies. Strategies proposed are: Establishing a high-level intergovernmental dialogue, Creating joint investment and information-sharing platforms among private companies, Expanding next-generation talent exchanges, and Linking bilateral cooperation with regional/global initiatives such as ASEAN+3 and APEC.

2. Advanced Technology and Economic Cooperation

The study identifies humanoid robotics as a promising area for Korea–Japan collaboration, based on comparative analysis of long-term national strategies and mission-oriented R&D programs. A three-stage roadmap toward 2050 is proposed, covering both technological and market/ application cooperation. Such collaboration could not only solve social challenges and enhance global competitiveness but also serve as an innovative model spreading across Asia.

In the economic field, supply chain cooperation is a top priority. Both nations face vulnerabilities due to high external dependence on energy, food, and minerals. With similar levels of economic development and shared values, Seoul and Tokyo should institutionalize economic security and industrial cooperation, eventually pursuing binding trade agreements.

Financial cooperation is another priority. The two countries should extend or renegotiate the bilateral currency swap agreement, set to expire in March 2026, and expand its scale. A yen–won swap mechanism could also be used for trade settlements, broadening its utility.

The study highlights green economy cooperation, focusing on hydrogen and ammonia. By sharing a vision for carbon neutrality by 2050, the two governments can lay the groundwork for long-term cooperation. The situation calls for “practical” agendas to address shared challenges in realizing a hydrogen society.

In the blue (marine) economy, opportunities for cooperation include: Joint development of seabed resources (oil, gas, rare earths) and offshore wind expansion; Technology collaboration on smart ports, autonomous vessels, and maritime communication; and Building interoperable port automation systems and smart port networks.

The upcoming termination of the Korea–Japan Continental Shelf Agreement demands a long-term vision. Considering China’s persistent claims and global climate change, Seoul and Tokyo could explore turning this area into a trilateral (Korea–Japan–China) cooperation zone, or even a “Korea–Japan–China+U.S.” arrangement, in light of the U.S.–China strategic competition. Korea should take the initiative to make the Joint Development Zone (JDZ) a space for cooperation, not competition.

Finally, the study stresses the role of minilateral cooperation within platforms such as the RCEP and IPEF. Such arrangements can generate tangible outcomes despite limitations in bilateral institutionalization. Korea and Japan should use existing agreements strategically, strengthen RCEP-based Korea–Japan–ASEAN cooperation, and lead digital transformation initiatives. Proposals include: Leading discussions on rules of origin and carbon reduction in RCEP, Launching joint digital pilot projects, and Supporting ASEAN digital capacity-building.

3. Social Dimension and People-to-People Ties

Both Korea and Japan face demographic crises of ultra-low fertility, aging, and population decline, leading to regional extinction—i.e., the disappearance of local communities. Policies for 2050 must focus less on raising birth rates and more on structural adaptation. Cooperation could include policy exchanges, youth and startup collaboration, digital regional revitalization, and cultural-tourism projects.

The study emphasizes the central role of youth in shaping future relations. Exchanges through culture, travel, and social media have brought younger generations closer than ever. However, asymmetries exist: in 2024, two-thirds of bilateral visitors were Korean, and Korean participation in student and youth exchange programs far exceeded Japanese. Reducing this imbalance is key to fostering mutual understanding.

The role of the media is also crucial. Korean and Japanese media should move beyond sensationalism in reporting on historical and territorial disputes, providing balanced, context-rich coverage. To this end, proposals include creating a Korea–Japan Media Monitoring Committee and launching a joint “Future Journalism” program at leading universities of both countries.

For cultural industries, three proposals are made: Government cooperation to expand exports of cultural content, Joint measures against illegal overseas distribution, and Support for Korean startups entering the Japanese market.

4. Conclusion: Entering a New Era The year 2025 represents both reflection on the past 60 years and exploration of the next 60—effectively marking the first year of a new Korea–Japan era. Yet both countries face unstable political leadership and external pressures from “Trump 2.0,” with heightened tariff and alliance burden-sharing demands limiting space for long-term vision.

Nevertheless, bottom-up dynamics are favorable: public perceptions are more positive than ever, and the two economies are deeply intertwined. Both nations share a vital interest in defending openness and free trade amid global protectionism.

Therefore, the future vision must move beyond bilateral reconciliation, instead focusing on cooperative agendas that ensure the well-being, prosperity, and welfare of future generations. Despite domestic political risks and external challenges in 2025, the responsibility of the current generation to contribute to this vision is more urgent than ever.

Executive Summary

1. Introduction

2. The Model

3. Theoretical Results

4. Empirical Analysis

5. Conclusion

References

This paper examines how culture influences the success of fertility-control policies. In the 1970s, many developing countries implemented birth-control measures grounded in the quality-quantity trade-off, yet their outcomes diverged, e.g., Taiwan, Thailand, and South Korea achieved rapid fertility declines, while Pakistan, India, and Brazil did not. We propose that societal conformity—the degree to which individuals adhere to norms such as a government-endorsed ideal family size— determines how effectively policy incentives translate into behavior. Using a unified theoretical framework, we show that higher conformity amplifies the impact of birth-control policies on both reducing fertility and increasing investment in children’s education. Under empirically plausible conditions, this strengthened quality-quantity trade-off not only boosts short-run economic growth but also accelerates the shift from agriculture to manufacturing—measured by manufacturing’s employment share—even when manufacturing is more capital-intensive and benefits from human-capital-driven, labor-saving technologies. Finally, we validate these predictions with cross-country empirical evidence, underscoring the pivotal role of culture in shaping demographic change and economic development.