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.

With the expansion of BRICS into BRICS+ in 2024, it has shown the potential for establishing a global order led by Global South countries. BRICs, officially launched in 2009 with four countries (China, Russia, India, Brazil), approved the accession of four new member countries (UAE, Egypt, Iran, Ethiopia) for the first time in 13 years since South Africa joined in 2011, and Indonesia formally joined as a member in 2025. Consequently, as of 2023, BRICS+ is a massive economic bloc, accounting for 28.1% of global GDP and 48.7% of the world’s population. Discussions are underway as to whether it will emerge as a new alternative to Western-centric economic cooperation, such as the G7, and the Bretton Woods financial order.

Particularly as economic and security cooperation with the Global South strengthens, centered around China and Russia, and the so-called Global South rises, BRICS+ is drawing attention as a focal point for Global South cooperation. China is expanding industrial, technological, financial, and supply chain cooperation with developing countries through initiatives like the Belt and Road Initiative (BRI), while Russia is expanding its influence centered on security cooperation. This has led the United States, among others, to closely monitor whether BRICS+ will bring structural changes to the international order. Especially in the 2020s, amid complex crises such as the COVID-19 pandemic, the Russia-Ukraine War, and the Israel-Hamas conflict, coupled with the escalating US-China competition, Global South countries are adopting diplomatic strategies that seek their own national interests by balancing between the US and China/Russia to diversify risks. Global South countries, including the new members, aim to achieve various goals — such as attracting domestic industries, acquiring technology, and securing stable supply chains — by strategically utilizing BRICS+. Recently, cases of South-South cooperation centered on BRICS+ member countries have also been increasing.

Against this backdrop, this study aims to derive policy implications for South Korea’s foreign economic policy by answering the following questions: (1) Why is BRICS+ expanding, and what are the motivations of the countries to join BRICS+? (2) Is strategic interdependence among BRICS+ countries increasing? (3) Will the economic power of BRICS+ in the global market be strengthened? (4) What are the future directions and challenges for BRICS+? Accordingly, this study focuses on 11 countries: the 10 BRICS+ nations and Saudi Arabia, which deferred its accession.

The expansion of BRICS+ was influenced by the rise of the Global South and the backlash against the Western-led international order. In particular, intensified Western containment of China and Russia provided the motivation for them to pursue the expansion of BRICS. The weakening of multilateralism and disappointment with Western leadership post-pandemic activated the discourse on the ‘rise of the Global South’, which led to high interest and positive responses from emerging countries regarding BRICS expansion. As Russia and China use BRICS+ as part of their strategy to counter the US, there is a view that sees BRICS+ as an anti-Western bloc. However, this dichotomous perspective has limitations, as it oversimplifies the complex participation motives of other BRICS+ members. It is true that BRICS+ member states are dissatisfied with the current order led by a few advanced nations. However, for original members like India, Brazil, and South Africa, as well as the new members, BRICS+ functions not as participation in an anti-Western coalition, but as a consultative body to reform the global governance system — which is unfair to developing countries — and to secure their own strategic and economic interests. Amid growing uncertainty in the international order due to the US-China strategic competition and the Russia- Ukraine War, many member states seek to use BRICS+ as a means for economic and diplomatic diversification. For example, BRICS+ provides Iran with a channel to bypass economic isolation, and offers Egypt and Ethiopia opportunities to receive financial support without relying on the IMF or World Bank. Furthermore, BRICS+ serves as a platform for countries like the UAE, which have felt marginalized in the Western-centric system, to enhance their global standing.

Above all, BRICS+ is becoming a key consultative body driving international cooperation that reflects the demands of the Global South. Member states are strengthening cooperation on common challenges for developing countries, such as climate change, health, and the eradication of hunger and poverty, in addition to calling for increased representation for developing countries at the IMF and reform of the UN Security Council. At the 2025 Rio Summit, they emphasized cooperation to protect the interests of the Global South, including a partnership to eradicate poverty, a declaration on climate finance, and the establishment of inclusive and fair global AI governance. This shows that BRICS+ is evolving from its existing financial cooperation into a multidimensional cooperative body representing the interests of the Global South across a wide range of fields, including health, climate, digital, and new technologies. Meanwhile, BRICS+ movements toward local currency settlement, the establishment of a grain exchange board, and cooperation in energy and advanced technology suggest the potential for economic solidarity among member states. Recently, the tariff policies of the Trump administration have also acted as an external factor promoting intra-bloc cooperation within BRICS+.

BRICS+ countries exert significant influence in the energy, critical minerals, and grain markets, as the membership includes major producers of crude oil, natural gas, and grains, as well as exporters of critical minerals. What is particularly noteworthy is the gradual increase in commodity trade among BRICS+ countries and the very low volume of trade with G7 nations. In other words, commodity trade between the G7 and BRICS+ is not active, which also suggests that the space for BRICS+ to align with the G7 during a complex crisis is diminishing. Meanwhile, commodity trade between non-BRICS+ Global South countries and BRICS+ is on an upward trend, which can be interpreted as the strengthening of BRICS+’s economic influence over the wider Global South. BRICS+ is strengthening cooperation on agriculture, energy, and critical minerals, and bilateral cooperation is also becoming more active.

In the manufacturing sector, China plays a core role in BRICS+ production, with over 83% of BRICS+ manufacturing exports originating from China. The countries with the next highest manufacturing export shares are India and the UAE, but their shares are very low compared to China’s. Consequently, manufacturing cooperation within BRICS+ is centered on China, and it should be seen that the Partnership on New Industrial Revolution (PartNIR), the Strategy for BRICS Economic Partnership, and the BRICS Industry Ministers’ Meeting are also, in effect, led by China. BRICS+ has expanded its export share to other BRICS+ members and third countries, centered on traditional manufacturing sectors like electrical/electronic equipment, machinery, and automobiles, with the export share of intermediate goods gradually increasing between 2013 and 2023. However, unlike the G7, the export share of capital goods has stagnated, suggesting that BRICS+ countries are engaged in cooperation closer to building a supply chain through intermediate goods trade, rather than acting as an export base.

Investment inflow into BRICS+ amounts to $330.6 billion (as of 2024), accounting for 21.9% of total global investment. Of this, China’s share alone accounts for 7.7% of the global total. In contrast, investment outflow from BRICS+ is only 15.1%, indicating a significant net investment inflow. The BRICS+ investment cooperation strategy is mainly composed of financial support through the multilateral financial institution, the New Development Bank (NDB), and investment cooperation via platforms (Business Council, Business Forum, PartNIR). In 2015 and 2021, they also agreed to promote investment among BRICS countries through the Strategy for BRICS Economic Partnership.

Meanwhile, contrary to concerns, bilateral investment among BRICS+ members is not large compared to their investments in the G7, and the investment sectors are also limited. An analysis of policy-driven investment trends, centered on sovereign wealth funds (SWFs), to gauge the investment policy direction of each BRICS+ government shows that major countries such as China, Russia, the UAE, and Saudi Arabia have recently been expanding their investments, focusing on advanced industries such as IT and bio industry. However, due to the nature of policy finance — seeking long-term returns — investments are heavily concentrated in politically stable and large markets like the G7 (especially the US and UK), suggesting limitations to bilateral investment cooperation within BRICS+. The reason for this phenomenon is that China and India are effectively the only countries within BRICS+ with high technological levels and large consumer markets, while the remaining countries have high demand for infrastructure and resource development. Financial cooperation among BRICS countries stems from the belief that their voting power in major multilateral financial institutions like the IMF and World Bank is low, and that the dollar-centric settlement structure can be disadvantageous due to factors like foreign exchange losses. In particular, after the financial crisis, restrictions on the voice of developing countries in the IMF and World Bank heightened the sense of crisis that the supply of international financial liquidity could operate primarily for the benefit of advanced nations. Consequently, China has long attempted to internationalize the RMB to reduce its financial dependence on the US, and RMB transactions have indeed increased slightly. In addition to traditional finance, BRICS+ countries have formalized the establishment of a BRICS digital payment network to expand digital financial cooperation, which is also linked to building a financial settlement safety net. Accordingly, the original five countries are leading the development and commercialization of CBDCs. BRICS financial cooperation is divided into emergency liquidity support (e.g., currency swaps, Contingent Reserve Arrangement), development finance through the NDB, and digital financial cooperation, and has produced various achievements.

However, as US countermeasures intensify in response to expanded financial cooperation, and the US formalizes the launch of stablecoins, challenges for BRICS+ financial cooperation are coming to the fore. Above all, the main challenges include: right-sizing the CRA fund to reflect the expanded membership and improving the efficiency of the risk management system; streamlining NDB voting rights; and building the digital infrastructure for the digital finance system centered on BRICS Pay and BRICS Bridge, as well as responding to stablecoins. Furthermore, the fact that countries like the UAE and Saudi Arabia use a dollar peg, and that their positions differ from those of Russia and Iran, which advocate for de-dollarization, is another factor to consider in the advancement of financial cooperation.

Based on previous analysis, this study suggests directions for cooperation between South Korea and BRICS+ countries, focusing on the future development path and challenges of BRICS+. First, BRICS+ is expected to develop in a direction that reduces economic dependence on the West. This can be seen as BRICS+ acting as an alternative cooperative body rather than an exclusive bloc. Accordingly, cooperation is expected to expand around: (1) strengthening economic cooperation in traditional industries, (2) leading global agendas that reflect the voices of developing countries (e.g., climate change, energy security, SDGs, poverty), and (3) expanding cooperation in advanced industries and technology. It is projected that the bloc-formation of BRICS+ will not threaten the existing international order system, contrary to some concerns. This is also linked to the following challenges. The main challenges facing BRICS+ are that member states have differing positions on the future direction of BRICS+, as well as on their stance toward the US, the accession of new members, and de-dollarization. The fact that they face US countermeasures, which also require a response, is another challenge. However, it is anticipated that as US containment of BRICS+ countries becomes more overt and its economic impact grows, it will create a space for BRICS+ countries to-solidify their solidarity.

Therefore, South Korea needs to strengthen: (1) expansion of minilateral cooperation, (2) joint responses to global agendas, (3) reinforcement of commodity supply chain cooperation, and (4) expansion of “software” cooperation to build cooperative networks with BRICS+ countries. However, rather than engaging with BRICS+ as a single bloc, it is necessary to maintain a direction that pursues South Korea’s economic interests through minilateral and bilateral cooperation with individual countries, while simultaneously expanding Korea’s economic footprint within the BRICS+ nations.

This study’s core objective is to identify the direction and policy tasks for a new Northern Strategy amid the shifting global order. This report focuses its analysis on three fundamental aspects, striving to ensure consistency within its content. First, it comprehensively examines the new external environment and conditions for cooperation between South Korea and Northern countries in the era of global order restructuring in 2025. Second, it comprehensively evaluates the 35 years of Northern Policy implemented since the establishment of diplomatic relations with the Soviet Union in 1990, identifying key achievements, challenges, and future cooperation needs. Third, based on these new demands for cooperation, it analyzes the economic impact of the Northern Strategy. By synthesizing the results of this analysis, it proposes a new direction for the Northern Strategy and a plan for managing neighboring countries.

Chapter 2 provides an in-depth examination of the structural changes in the global strategic environment and the new geopolitics of Eurasia. To deeply identify the key characteristics of the new foreign strategic environment and the conditions for pursuing the Northern Strategy, this study comprehensively analyzed the following: changes in the external environment and the direction of the new international order; alternatives to the post-Cold War system and the US's composite strategy; the rise of Eurasian regionalism and the changing external environment; and new dynamics and future challenges in Eurasian international relations.

Chapter 3 provides a comprehensive assessment of the Northern Policy over the past 35 years. It examines Korea's economic relations with key Northern cooperation partners—Russia, Mongolia, Central Asia, and the Caucasus—and identifies the growth goals and challenges these countries face amid a rapidly changing international order and uncertainty. This analysis aims to provide meaningful implications for formulating a new Northern Policy.

Chapter 4 examines the economic impact of the new Northern Strategy. To measure the economic spillover effects of cooperation with Northern countries, particularly Russia, we utilized a Computable General Equilibrium (CGE) model to analyze the GDP, total consumption, and total investment effects of each simulation of economic cooperation. Because partial equilibrium analysis may not adequately reflect the influence of markets, we examined the entire national economy through general equilibrium analysis. The countries analyzed included Russia, Central Asia (Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan), China, and Mongolia. Specific targets and sectors were simulated based on existing research identifying areas with significant economic impact. Specifically, we analyzed the economic impacts of strategic industries such as logistics and power grids, energy and industrial cooperation, and ICT, as well as cultural exchange and tourism cooperation, where demand intersects. Based on this analysis, we aimed to identify areas of strategic cooperation that are expected to generate mutual benefits, including the potential economic spillover effects following the Russia-Ukraine War, such as the easing of sanctions against Russia.

Chapter 5 outlines policy implications of the research and proposes policy measures that take into account the new external environment. The most crucial element in formulating and implementing a new Northern Eurasian policy is the in-depth consideration of macroeconomic and structural factors. In other words, we must first understand the changing direction of the international order and its key characteristics to develop effective response measures. In this context, South Korea needs to consider the new challenges and cooperation needs of the countries of Northern Eurasia and formulate policies centered on strategic priority areas of cooperation.

This study examines the recent evolution of U.S. foreign economic policy, confirming through multiple sources that it is increasingly converging toward a stronger form of economic nationalism under the “America First” banner. It empirically evaluates whether major U.S. policies have achieved their intended economic outcomes and assesses their broader implications for Korea. Building on these findings, the study projects the likely trajectory of U.S. policy and derives implications for Korea’s trade, industrial cooperation, and collaboration with like-positioned partners.

Chapter 2 reviews the background and current direction of U.S. foreign economic policy. The Trump 2.0 administration’s approach represents a continuation of long-standing U.S. protectionism and isolationism, now reshaped into a 21st-century form of economic nationalism. Historical precedents include McKinley’s tariff policies and Reagan’s strategic protectionism, but current policies are more explicitly geopolitical—responding to China’s rise and global supply chain shifts. Under the four core themes of border security, energy independence, government reform, and value restoration, the administration is using Section 232, Section 301, and the IEEPA to enhance U.S. bargaining power while strengthening domestic manufacturing and tax bases through the One Big Beautiful Bill Act (OBBBA). The chapter also highlights the enduring anti-China orientation shaping U.S. policy since the Obama administration’s Pivot to Asia, sustained through both Trump and Biden presidencies. Recent U.S.–China tariff negotiations have only delayed, not resolved, structural trade frictions.

Chapter 3 presents empirical analyses of key policies. The Tax Cuts and Jobs Act of 2017 (TCJA) reduced U.S. outbound FDI but increased inbound FDI, indicating a re-concentration of global investment around the U.S. economy. This suggests that Korea must adapt its FDI strategies and risk management accordingly. The analysis of Section 301 tariffs shows heterogeneous impacts: while overall benefiting Korean exports, gains largely reflect indirect trade diversion amid heightened U.S.-China tensions. A qualitative comparison of industrial policies under successive administrations reveals that Trump 2.0 policy prioritizes shipbuilding, nuclear, and AI industries, while semiconductor and renewable sectors face greater policy uncertainty—underscoring the need for sector-specific strategies in U.S.–Korea cooperation.

Chapter 4 concludes that U.S. economic nationalism will intensify, with China containment at its core. The United States is expected to further promote domestic production in strategic sectors such as steel, autos, shipbuilding, semiconductors, and biopharma, while excluding China from key supply chains. Under Trump, unilateral measures such as tariffs, export controls, and investment restrictions will likely prevail, whereas a future Democratic administration may revive alliance- based approaches.

This study examines Japan’s labor shortage, tracing it from cyclical tightness in the early 1970s and the late-1980s/early-1990s bubble to a structural shortfall since the mid-2010s driven by the sustained contraction of the working-age population. Earlier episodes were demand-led and policy-induced (for example, the transition to a 40-hour work week), whereas today’s tightness is demographic in origin and therefore persistent. Chapter 2 details these dynamics and the underlying structural constraints.

To manage this challenge, Japan’s policy response combines mobilization of domestic labor—most notably rising participation by women and older workers—with an expanded intake of foreign workers. The foreign-resident population grew from roughly 2.09 million in 2014 to about 3.59 million in 2024, with rapid increases in Technical Intern Trainees and Specified Skilled Workers. These increases reflect domestic drivers—population aging and acute shortages in care, hospitality, construction, etc.—as well as international forces, including a surge in Asia-centered labor migration and policy shifts. Chapter 3 assesses Japan's policy efforts to engage women and older workers into the labor market, while Chapter 4 reviews the theory, history, and practice of international labor migration in Asia. Chapter 5 disaggregates Japan’s foreign-worker regime into three pillars—high-skilled channels, the Technical Intern Training Program, and the Specified Skilled Worker system—and evaluates their policy design, outcomes, and outstanding issues. Chapter 6 assesses integration through wages and social-insurance coverage as indicators of how well foreign workers are settling into Japanese labor markets and society.

This study sets out the following policy implications for Korea. For older workers, Japan’s experience shows the effectiveness of gradual, sequenced reform—phased extensions of employment guarantees—backed by targeted subsidies, sustained social dialogue, and flexible compliance options for firms. Firm-level transparency and action plans, combined with workplace redesign, childcare provision, and well-targeted grants, have helped lift women’s participation. On foreign workers, Japan and Korea should streamline its fragmented governance and build a more efficient architecture for lower-skilled pathways, with clear skill-progression ladders that link training and language support to advancement in wages and roles. Korea should also better leverage international students by smoothing school-to-work transitions and strengthening settlement support. Finally, Japan and Korea could co-lead rules-based cooperation with major sending countries to stabilize flows and alleviate persistent shortages.

Foreword

Part 1 Key Policies for Open Strategic Autonomy
01. The Evolution of South Korea’s Economic Security Strategy | Seungjoo Lee |
02. Partners Under Pressure: Strengthening Dutch-South Korean Economic Security Amid a Fractious Indo-Pacific | Richard Ghiasy |
03. Toward a Strategic Partnership in Science and Technology between Korea and the Netherlands | Myong Hwa Lee |
04. Cooperation on Control Points is Needed for Strategic Autonomy | Joris Vierhout, Amber Geurts |

Part 2 Key Technologies for Open Strategic Autonomy
01. Korea–Netherlands Cooperation Agenda for Advanced AI Semiconductor R&D | Seokjoon Kwon |
02. Quantum Technology as a New Frontier of Cooperation: NL-ROK Partnership Opportunities | Anna Grashuis, Ingrid Romijn, Ulrich Mans, Mayra van Houts |
03. ROK-NL Strategic Cooperation in Energy Security | Sunghun Cho |
04. Key technologies for Open Strategic Autonomy in Korea and the Netherlands: Critical Raw Materials for Defense | Irina Patrahau, Benedetta Girardi |

Conclusion and Policy Recommendations

As has recently been observed, the global economic order is undergoing a profound transformation. The intensifying geopolitical rivalry among great powers, the retreat from multilateralism, the resurgence of protectionist policies, and the weaponization of trade and technology have shaken the foundation of the open and inclusive global economic order, which has been around for a long period. These changes underscore the growing importance of technological leadership, secure supply chains, and resilient industrial ecosystems in shaping the economic security and strategic autonomy of individual nations. However, pursuing security and autonomy does not mean isolation. Ironically, the necessity for like-minded countries to cooperate has never been greater, as no single nation can cope alone with the shift in the global economic order.

The Republic of Korea and the Netherlands, as middle powers and trading nations, share a deep interest in preserving the stability, openness, and resilience of the global economy, which ultimately contribute to the prosperity of all participating countries. South Korea, for example, has long been a globalized manufacturing power house, heavily relying on global value chains to support its growth. However, a series of shocks, including China’s economic retaliation over THAAD, Japan’s export controls, the COVID-19 pandemic, and US–China technology competition, revealed structural vulnerabilities of Korea’s export-oriented economy. Korea’s new economic security strategy, as detailed in this volume, reflects efforts to reconcile its position as an export leader and an import-dependent economy. Similarly, the Netherlands, one of Europe’s most open trading nations, faces the challenge of mitigating risks while preserving openness. The country positions itself as a logistics hub, a high-tech innovator, and a host of globally competitive firms such as ASML. As the European Union attempts to lower its external dependencies in strategic sectors, the Netherlands plays a significant role in shaping Europe’s economic security agenda.

Against this backdrop, Korea and the Netherlands emerge as natural partners. Their complementary strengths in semiconductors, advanced manufacturing, quantum technology, and clean energy transition can create opportunities for them to build resilient supply chains and shape global standards jointly. Their partnership also aligns with broader Indo-Pacific regional frameworks, including the EU–Korea Strategic Partnership and the international component of Horizon Europe, positioning both countries to contribute to a stable, rules-based global order.

This edited volume, “Industrial Open Strategic Autonomy in the Indo-Pacific: Focusing on High-tech Industrial Innovation and Supply Chain Security”, examines how Korea and the Netherlands can deepen their cooperation across key policy areas and critical technologies to advance open strategic autonomy. Drawing on contributions from leading experts, the volume is organized into two parts. Part I analyzes the policy foundations of economic security and strategic autonomy and Part II explores the technological domains essential to achieving these goals. Based on the authors’ in-depth analyses, three main recommendations for ROK-Netherlands cooperaion on open strategic autonomy are suggested: first, establish a shared economic security foresight mechanism. Third, coordinate sustainable supply chain resilience. Third, coordinate sustainable supply chain resilience.

Executive Summary

1. Introduction

2. Model

3. Data and Calibration

4. Assessing Debt Sustainability in the APEC Economies

5. Conclusion

References

Appendix
A. OLG Model and Calibration
B. Dynamics of the Debt-to-GDP Ratio
C. Additional Tables

In this paper, we estimate additional government expenditure used to reduce AI’s existential risk and assess public debt sustainability. Our most important policy-relevant finding is that even under the conservative assumption that government expenditure equals the maximum amount society is willing to sacrifice to mitigate AI risk, and that all such expenditure is financed by issuing sovereign bonds rather than raising taxes, government debt does not necessarily become explosive. Instead, in our benchmark scenario—where the growth-enhancing effect of AI is calibrated to the average of prior studies—the debt ratio remains sustainable for most APEC economies. We also find that, except for Russia, an additional AI-driven growth effect of 3.4–6.1% would suffice for debt financing to remain sustainable for many APEC economies. In particular, for the United States, the required effect is 3.8% or 4.6%, depending on parameter assumptions. For faster growing economies such as China and Korea, the required additional effect is even smaller than for the United States.

Executive Summary

1. Introduction

2. Informal Economy and Composition of ODA in the Philippines

3. Model

4. Macroeconomic Equilibrium

5. Results

6. Conclusion

References

We analyze how the size and composition of official development assistance (ODA) shape aggregate performance and informality in the Philippines using a small open-economy dynamic general equilibrium model with a formal and informal sector. Two main scenarios are considered: (i) an increase in total ODA and (ii) a higher share of tied aid, given a fixed amount of ODA. Both scenarios raise capital, output, and consumption in steady state, but through distinct mechanisms. The first scenario primarily increases demand and appreciates the relative price of informal goods, expanding informality. By contrast, the second scenario expands public capital, crowds in formal investment, lowers the relative price of informal good, and shifts resources toward the formal sector, despite short-run reallocation costs.

Executive Summary

1. Introduction

2. Theoretical Framework

3. Data

4. Methodology

5. Results

6. Discussion

7. Conclusion

References

Appendix

This paper investigates how environmental, social, and governance (ESG) conditions, together with economic factors, shape fertility dynamics in APEC economies. Using World Development Indicators from 1996 to 2021 and assembling more than 1,400 indicators, we predict annual changes in the crude birth rate. Models are trained on non-APEC economies and tested out of sample on APEC economies. Random Forest achieves the lowest RMSE at 0.397, and models that combine ESG and economic variables outperform those relying on economic indicators alone, with RMSE values of 0.271 and 0.298 respectively. SHapley Additive Explanations (SHAP) reveal that environmental factors are the most influential predictors of fertility in APEC, followed by governance, while social factors are smaller in magnitude but show increasing importance over time. Lag analysis indicates short-run effects for social and governance variables at one-year lags and medium- term cumulative effects for environmental variables, peaking around four years. Country-level profiles highlight clear heterogeneity: environmental drivers dominate in China and Russia, governance factors are most important in Korea and the United States, and social influences are stronger in Canada and Japan. The study provides a comprehensive, externally validated, and interpretable framework for fertility prediction, while emphasizing that the analysis remains predictive and associational rather than causal. We regard this as a first step toward more rigorous causal evaluation of the highlighted drivers.

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.