Since experiencing high inflation rates in the 1970s, South Korea and many other countries around the world have gradually transitioned into a low-inflation environment. In particular, a global trend of disinflation emerged in the aftermath of the global financial crisis. Meanwhile, population aging has been progressing in Korea as well as in other countries, and there has been increasing speculation that demographic changes are significantly associated with the phenomenon of low inflation. However, empirical research on this issue—especially studies focusing on Korea—remains very limited. This study empirically investigates the impact of population aging on inflation in the Korean context.
Specifically, this study examines how population aging influences inflation in South Korea. We begin by reviewing major factors that affect inflation, including demographic aging and other recent developments that may have contributed to the decline in inflation. To identify the effect of population aging on inflation, we construct a structural vector autoregression (SVAR) model that incorporates key determinants of both demographic and inflation dynamics. Given that the magnitude and effects of demographic shocks may have intensified in recent years, and that such impacts may vary over time, we employ a time-varying structural VAR model to conduct our empirical analysis.

Based on the results of the empirical analysis, we infer the impact of population aging on inflation. In particular, because there is a lack of research on this topic for Korea and other Asian countries—and considering that inflation is a key variable closely tied to quality of life—this study is expected to provide important policy implications for the Korean economy. Furthermore, the study aims to develop a novel analytical approach that differentiates it from existing literature, and this methodology is expected to be widely applicable in future research.

· Principal Investigator : Soyoung Kim (Department of Economics, Seoul National University)

· Co-Investigator :  Joonyoung Hur (College of Economics, Sogang University), Woongji Lim (Bank of Korea)

As South Korea undergoes rapid population aging, the structure of its economy is also swiftly transforming into a digital economy. In particular, the financial sector is experiencing accelerated digitalization, driven by the widespread adoption of fintech innovations such as mobile payment systems. Additionally, the proportion of online commerce is increasing significantly. Amid this rapid technological transition, digital exclusion among the elderly has become increasingly pronounced, especially in the financial domain. In light of this, there is a pressing need for systematic research to diagnose the digital divide across age groups and to estimate the associated social costs.
The primary aim of this study is to understand the intergenerational digital divide emerging in tandem with population aging and the digital transformation of the economy. Specifically, the relatively limited use of digital technologies by the elderly may have wide-ranging economic implications, including effects on productivity and costs. This study focuses on identifying and assessing the current state of digital polarization in the financial sector. Subsequently, we intend to develop a model that incorporates digital inequality to analyze its impact on social welfare and related outcomes.
The findings of this study are expected to offer valuable insights into the digital divide that arises at the intersection of demographic aging and economic digitalization, thereby contributing to the formulation of effective macroeconomic and financial policy responses.

· Principal Investigator : Young Sik Kim (Department of Economics, Seoul National University)

· Co-Investigator :  Ohik Kwon (Economic Research Institute, Bank of Korea) 

Real interest rates in Korea have been on a steady decline and currently hover around zero percent. This prolonged decline in real interest rates is considered a hallmark of what is often referred to as a structural secular stagnation. One of the key drivers behind this phenomenon is demographic change, particularly the declining population growth due to low fertility rates and the rising proportion of the elderly population stemming from increased life expectancy. The structural stagnation that the Korean economy is experiencing is shaping a new economic environment that may be characterized as the “new normal.” Under this new normal, the effectiveness of macroeconomic policies, such as monetary and fiscal policy, may qualitatively differ from their effectiveness under previous economic conditions.
For instance, if inflation remains stable while real interest rates fall, nominal interest rates are likely to fall as well. This imposes limitations on the ability of monetary policy to stimulate the economy during downturns by lowering nominal benchmark interest rates, due to the effective lower bound of zero percent. In such an environment, fiscal policy may prove more effective in countering economic slumps. However, the growing burden of age-related fixed expenditures and the potential insolvency of public pension systems may constrain the implementation of expansionary fiscal policy. Accordingly, in light of the demographic transitions shaping the new normal, it is imperative to reassess and comparatively analyze the effectiveness of various macroeconomic policy tools to design more effective policy responses.
This study aims to evaluate the effectiveness of key macroeconomic policies—namely, monetary and fiscal policy—within the new economic context brought about by demographic change, and to propose more effective policy directions. To this end, the study seeks to accomplish the following objectives: 1) Develop an open-economy overlapping generations (OLG) model capable of analyzing the effects of monetary and fiscal policy; 2) Compare the effectiveness of these policies under changing demographic conditions; and 3) Propose macroeconomic policy directions better suited for the new normal era.
The findings of this study are expected to contribute to the formulation and implementation of more desirable macroeconomic policies in response to the evolving economic landscape shaped by demographic transformation.

· Principal Investigator : Woong Yong Park (Department of Economics, Seoul National University)

· Co-Investigator :  Jae Won Lee (Department of Economics, Seoul National University)

This study investigates how changes in demographic and industrial structures affect the financial markets. In quantitative finance, one approach to modeling such structural changes is through the introduction of a probability measure. Conventional methods typically assume a probability measure a priori and analyze changes based on this assumption. However, these methods are prone to errors when the assumed probability measure is misspecified. To overcome this limitation, we propose a robust methodology that does not rely on a fixed probability measure. Instead, the analysis considers the entire set of possible probability measures to assess the effects of demographic and industrial structural changes on the financial markets.
The primary objective of this study is to analyze the long-term impacts of demographic and industrial transformations on financial markets using robust methods, and to develop solutions via artificial neural network (ANN) techniques. Since robust methods do not assume a specific set of probability measures a priori, classical Ito integration is not applicable. Instead, pathwise integration is required. In this framework, the influence of structural changes is modeled using pathwise stochastic differential equations (SDEs). A key goal is to analyze the solutions to these pathwise SDEs and implement them using neural network-based approaches.
As noted above, the robust methodology offers significant advantages in modeling changes in financial markets, especially in environments where predicting demographic or industrial changes is inherently difficult. This approach overcomes limitations of traditional methods and enables more efficient analysis of market dynamics. Given that asset drifts, volatilities, and payoffs of financial derivatives in real markets are generally dependent on the underlying probability measure, the robust framework yields practically valuable results.
The artificial neural network approach plays a crucial role in this study. In general, SDEs lack closed-form solutions, and thus numerical approximation methods are widely used, with numerous algorithms already developed. However, practical numerical methods for solving pathwise SDEs remain underdeveloped. This research aims to fill that gap by developing fast and effective numerical algorithms to approximate solutions to pathwise SDEs, with the goal of enabling their application in real-world financial settings.

· Principal Investigator : Hyungbin Park (Department of Mathmatical Sciences, Seoul National University)

In the era of low birth rates and population aging, the concentration of population and resources in the Seoul metropolitan area has been accelerating, raising serious concerns about the potential disappearance of local regions. Since the launch of the first phase of the Gyeongbu High-Speed Rail (KTX) in 2004, the KTX network has expanded to form a nationwide transportation system, significantly impacting the lives of Korean citizens. Existing studies have primarily focused on how the opening and expansion of KTX lines affected overall economic activity in connected regions—such as changes in total employment across all industries or in service sectors like accommodation and food services. However, there has been little investigation into how KTX connectivity influences the broader industrial structure of local economies.
This study aims to test the central hypothesis that manufacturing and service industries respond differently to increased inter-city connectivity. When KTX enhances linkages between cities, consumption in the service sector tends to concentrate in larger urban areas—a phenomenon often referred to in the literature as the “straw effect.” In contrast, manufacturing industries, due to their dependence on geographic advantages and economies of agglomeration, are less mobile even when inter-city connectivity improves. For example, POSCO must remain located near the coast for logistical and production-related reasons and must also be in close proximity to related firms. As such, it is difficult for firms like POSCO to relocate to larger cities despite improved transport links. This immobility of manufacturing industries represents a new channel of impact that this study seeks to explore. As a basic industry, manufacturing typically generates positive spillover effects on employment in other sectors (i.e., an employment multiplier). When a regional economy becomes connected to the KTX network, we expect the level of manufacturing employment to remain relatively stable, while service sector employment is likely to be more significantly affected. Consequently, the capacity of manufacturing to stimulate employment in other sectors may diminish—suggesting that the role of basic industries in supporting local economies may weaken (“basic industry may become less basic”).
This study seeks to provide a more fundamental understanding of the impact of KTX expansion on regional economies. By calculating and comparing employment multipliers for various manufacturing sub-sectors before and after KTX connectivity, the study aims to identify which industries play more critical roles in supporting regional employment. Based on these findings, the research is expected to offer meaningful policy implications for addressing the risk of regional decline and promoting balanced national development.

· Principal Investigator: Jae Bin Ahn (Graduate School of International Studies, Seoul National University)

· Co-Investigator :  Seung Hoon Lee (School of Economics, Yonsei University)

Due to the impact of a severe decline in birth rates, South Korea’s total population began to decrease in 2021. However, the nationwide reduction in population and labor force is projected to proceed at a relatively moderate pace for the time being. In contrast, some regions have experienced rapid population decline for quite some time, leading to a worsening imbalance in regional population distribution. These demographic shifts at the regional level are exacerbating local fiscal strain and increasingly becoming a burden on the national economy as a whole. In response, the government has recently designated 89 out of 229 local municipalities—approximately 39%—as “population-declining areas” that are at risk of extinction, and is currently discussing policy measures. To more effectively address the so-called “regional extinction” and inter-regional population imbalances, it is essential to conduct a more in-depth analysis of the causes and region-specific factors driving these trends and to formulate policy responses that are appropriately tailored to such insights.
This study aims to empirically examine the underexplored causes and characteristics of regional population change from several perspectives. First, we decompose regional differences in the number of births and total fertility rates using demographic factors such as the structure of the female population, marriage rates, divorce rates, proportion of married women, and fertility among married women. Based on this decomposition, we identify contributing factors and propose policy implications. Second, we analyze the contribution of natural population decline, net outmigration, and rising rates of non-marriage to regional population decreases and suggest directions for policy responses accordingly. Third, we investigate the correlation between the socioeconomic environment of regions and demographic change to suggest region-specific strategies for mitigating population decline. Lastly, we analyze the dynamic patterns of population change following significant local developments such as the establishment of large-scale production facilities, new transportation infrastructure, or the relocation of administrative institutions.
The findings of this study will be compiled and submitted as an academic paper, and are expected to serve as valuable empirical evidence for devising policies that address regional disparities and the crisis of local extinction.

· Principal Investigator: Chulhee Lee (Department of Economics, Seoul National University)

· Co-Investigator :  Sok Chul Hong (Department of Economics, Seoul National University)

The excessive concentration of economic activity in the Seoul metropolitan area and the resulting decline of regional economies in South Korea present challenges not only from the perspective of regional inequality and balanced national development, but also in terms of macroeconomic efficiency in the use of limited land resources and the sustainability of long-term growth. This spatial concentration of economic activity is fundamentally driven by internal migration and subsequent changes in the regional distribution of the population. It has manifested as a range of socioeconomic issues, including the disproportionate appreciation of real estate values in the Seoul metropolitan area and the decline or disappearance of key regional economic hubs.
While urban development and agglomeration are natural phenomena in the process of economic growth, there remains a lack of comprehensive research on whether the current degree of concentration in the Seoul metropolitan area is appropriate given its geographical size, and what the underlying causes may be.
This study addresses these research needs and concerns by examining the relationship between internal migration, demographic structural changes, and the spatial concentration of economic activity in Korea from the perspective of spatial economics. The primary objective is to derive implications for real estate value formation, economic growth, and inequality dynamics in the Korean economy.
Through this analysis, the study aims to present a framework for the spatial economic analysis of Korea, provide a systematic investigation into the fundamental drivers of population movement and demographic change, and enhance academic understanding of the agglomeration process in Korea’s economic development. Furthermore, by shedding light on the long-term determinants of real estate value fluctuations, this research seeks to inform more effective real estate policy frameworks and contribute to the discourse on balanced regional development in South Korea.

· Principal Investigator: Hyeok Jeong (Graduate School of International Studies, Seoul National University)

· Co-Investigator :  Hyunjoo Yang (College of Economics, Sogang University), Jongkwan Lee (Department of Economics, Ewha Womans University)

Due to population aging and declining birth rates, the proportion of retired elderly individuals within the total population is steadily increasing. In the past, Korea’s economic growth was largely supported by the savings of the working population and foreign capital, which played a crucial role in corporate financing. However, with the growing number of retirees, understanding their investment behavior has become essential for lowering corporate financing costs and achieving stable economic growth. Moreover, since retirees lack stable wage income, securing steady cash flow through reliable capital income is critical. This makes the construction of an appropriate investment portfolio—adapted to macroeconomic conditions such as low interest rates or rising interest rate environments—vital for maintaining their quality of life.
This study explores the composition of optimal investment portfolios that enhance the welfare of retirees amid rapidly changing macroeconomic conditions. Such efforts will also contribute to the sustainability of national finances, particularly in the context of concerns regarding the depletion of the National Pension Fund and the rising costs of social welfare. Furthermore, this research offers insights into optimal corporate financing strategies, thereby supporting Korea’s economy in fostering stable corporate investment and quantitative growth in the face of profound demographic shifts.
The study proceeds in two dimensions: First, it theoretically investigates investment options that can generate stable cash flows under environments characterized by low interest rates or rising policy rates. Second, it empirically examines whether such investment patterns are being realized in practice. Building on this, the study projects how domestic investors’ portfolio preferences might evolve in response to anticipated demographic changes in Korea. Based on these findings, it derives implications for optimal capital financing strategies that minimize funding costs for firms.

To this end, the study sets forth the following specific objectives: (1) Derive the optimal investment strategy for retirees under varying macroeconomic conditions; (2) Conduct an empirical analysis of retirees’ investment patterns using data from the Survey of Consumer Finances or similar datasets; (3) Forecast the trends in domestic investors’ portfolio composition in light of projected population aging and declining population growth rates; (4) Propose optimal corporate financing mechanisms that minimize capital costs under demographic transformation.

Ensuring stable financial returns through well-structured investments is essential to improving the quality of life for retirees. This also reduces reliance on public pensions and social assistance, thereby supporting the sustainability of national pension systems and public finances. Additionally, this research aims to offer policy-relevant insights into appropriate investment options for retirees under various macroeconomic scenarios. Ultimately, it will inform optimal corporate financing strategies, which are indispensable for the stable growth of the national economy.

· Principal Investigator : Dong Beom Choi (Business School, Seoul National University)

· Co-Investigator : Hyun-Soo Choi (College of Business, KAIST)

Advanced countries, including South Korea, are increasingly seeking to secure a sustainable working-age population through immigration in response to demographic changes driven by rising life expectancy and declining birth rates. In particular, as of the end of 2020, foreign migrants accounted for 5% of South Korea’s registered population (approximately 2.5 million people), marking a steady upward trend over the past two decades. The number of international students in Korea has also increased in a similar trajectory to that of the overall migrant population. Compared to low-skilled foreign laborers engaged in manual work, international students have the potential to contribute more substantially to the national economy by entering high value-added tertiary sectors such as research and development, finance, and education. Moreover, international students can help mitigate the negative impact of declining school-age population on higher education demand in Korea. This is particularly beneficial for universities located in non-metropolitan regions and can contribute to the revitalization of local economies. However, the indiscriminate expansion of international student inflows may also lead to unintended consequences, such as an increase in the number of undocumented migrants and negative spillover effects on domestic students due to the admission of students with insufficient academic preparedness. To manage the quality of international students amidst their growing numbers, the Korean government introduced a certification system in 2011 to assess and approve the capacity of institutions to recruit and manage international students. This system was refined through policy adjustments in 2016 and 2020. While the policy has had positive effects, such as reducing the rate of illegal stay and improving students’ language proficiency, a notable decline in the number of international students was observed during the 2011–2015 period.

This research project investigates the impact of the international student certification system on university finances by comparing institutions in the Seoul metropolitan area with those in non-metropolitan regions.

Furthermore, this study aims to empirically analyze how changes in international student recruitment and management policies affect local economies and societies. Key variables influenced by these policy changes include labor market indicators (such as employment and wages), health and welfare-related variables, changes in population size and characteristics at the regional level, and perception-based indicators such as local residents’ satisfaction.

Through this study, we aim to provide insights into how international student policies can be re-evaluated and improved to effectively respond to Korea’s rapid demographic transformation, particularly in the context of population aging and declining school-age cohorts. The findings are expected to serve as a foundational resource for future policy design and as academic material for the education of the next generation of scholars in the field of migration and foreign resident studies in Korea.

· Principal Investigator: Syngjoo Choi (Department of Economics, Seoul National University)

· Co-Investigator : Seonghoon Kim (School of Economics, Singapore Management University), Jongkwan Lee (Department of Economics, Ewha Womans University), Chung-Yoon Choi (MA Candidate, Department of Economics, Seoul National University)

In 2020, Korea’s current health expenditure amounted to 161.7 trillion KRW, representing 8.4% of GDP. The funding sources were composed of government contributions (11%), mandatory health insurance (51%), and voluntary schemes (38%). The annual average growth rate of real per capita health expenditure during the 2010s was 6.1%, significantly higher than the OECD average of 1.3%. In 2020, 43.1% of total National Health Insurance (NHI) benefits were allocated to individuals aged 65 and older, and this share has been steadily increasing. This trend of rising healthcare expenditures is primarily driven by rapid population aging and the consequent continuous increase in medical costs. In particular, the socialization of caregiving is expected to be a potent additional driver of future healthcare spending.

Given that the NHI covers more than half of Korea’s current healthcare expenditures, the increase in the elderly population poses a serious risk to the sustainability of the health insurance system. This raises concerns that the expanding financial burden may ultimately constrain the NHI’s role as a social insurance program. Analyzing the impact of demographic changes on the fiscal sustainability of health insurance is, therefore, an essential task. As a universal, mandatory social insurance system, the National Health Insurance faces mounting fiscal pressure in the context of accelerated population aging. Should financial imbalances persist, measures such as raising insurance premiums or reducing benefits may become unavoidable. However, increasing insurance premiums is akin to a rise in the tax burden on individual economic agents, which could distort resource allocation and thus have profound macroeconomic consequences.

This study aims to quantitatively assess how population aging affects macroeconomic variables such as labor supply, consumption, savings, and the demand for healthcare services, by adapting a macroeconomic model that incorporates the influence of individuals’ health status on economic decision-making. Furthermore, it evaluates the effects of alternative policy scenarios designed to ensure the sustainability of the health insurance system. As aging progresses, medical expenditures are expected to rise, while the shrinking working-age population is likely to reduce the total amount of collected insurance premiums, leading to significant fiscal deterioration in the NHI. In addition, premium increases aimed at mitigating these fiscal challenges may weaken labor supply incentives. Therefore, this study proposes rational policy alternatives to address the growing fiscal burden of the NHI and presents strategies to enhance the sustainability of the public health insurance system through a rigorous analysis of their macroeconomic implications.

· Principal Investigator : Jay H. Hong (Department of Economics, Seoul National University)

· Co-Investigator :  Sun-Bin Kim (School of Economics, Yonsei University) 

Demographic structure is one of the most influential factors affecting the welfare implications of economic policies. In particular, the recent rapid changes brought about by declining birth rates and population aging have significantly altered the policy environment. In order to mitigate the adverse effects of such demographic shifts, it is crucial to proactively adjust economic policies and institutional frameworks. Among these, it is especially important to examine potential reforms in taxation and redistribution policies, which lie at the core of economic policy in many countries.

This study aims to investigate potential directions for improving taxation and redistribution policies in response to demographic changes. Specifically, it explores two key dimensions. First, it analyzes how the direction of reform in taxation and redistribution policies aimed at achieving Pareto improvements is influenced by changes in demographic structure. Second, it examines the optimal adjustment of tax and redistribution policies in response to demographic dynamics.

Amidst rapid demographic transitions, understanding how these changes affect the welfare outcomes of policies—and incorporating these insights into the design of taxation and redistribution measures—is expected to provide practical guidance for formulating more effective and realistic fiscal policy recommendations.

· Principal Investigator : Yena Park (Department of Economics, Seoul National University)

· Principal Investigator : Yves Gueron (Department of Economics, Seoul National University)