KIET Industrial Economic Review, Vol. 31 No. 3 (May/June 2026)

The issue opens with the semiannual forecast pair. The Office of Industrial and Economic Data Analysis projects 2.5 percent GDP growth for 2026, with exports remaining the principal driver on the strength of semiconductors and ICT products tied to global AI infrastructure investment. Domestic demand firms up as well, with private consumption at 2.2 percent, facility investment at 2.9 percent, and construction returning to positive growth for the first time since 2020. The balance of risks nonetheless stays tilted to the downside, reflecting the US-Iran conflict, Dubai crude projected to average USD 92 per barrel, and uncertainty over whether AI-related investment holds.

The companion sectoral forecast from the Flagship Industry Forecasting TF makes the concentration explicit. Exports from Korea's 13 flagship industries are projected to grow 31.9 percent in H2, almost entirely on semiconductors (+101.9%) and ICT devices (+93.2%), while automobiles, textiles, and home appliances contract. The issue's recurring diagnosis of a booming high-tech core alongside a struggling legacy periphery is stated most plainly here.

In a contribution to IER celebrating the 50th anniversary of KIET's founding, Professor Barry Naughton of UC San Diego, of the world's preeminent experts on the Chinese economy, contributes a Global Perspectives essay on what he calls China Industrial Policy 3.0: securitized, less targeted than its predecessors, and executed through new instruments including innovation consortia, application scenarios, restructured universities, and the government's cocooning of Huawei. He argues that the indirect institutional and macroeconomic costs are larger than most accounts assume.

Four research articles follow. Sang-hyun Lee and Seung-hwan Oh of the Office of AI and Digital Transformation Research ask why manufacturing AI transformation has stalled despite dense policy support, finding that only 19.5 percent of SME manufacturers have adopted smart factory technology and 95.5 percent are not considering AI at all. They attribute this to bifurcated MOTIE/MSS governance, an AI-model-centric approach, and neglected AX infrastructure. Sul-Ki Lee reframes energy security as equipment security, showing that Korea has lost domestic capacity in solar wafers and low-iron glass entirely, and argues that stockpiling and import diversification cannot address a problem rooted in global production concentration. Sangsoo Park of the Office of Strategic Industries Analysis applies a PSM-DID design to 614 general machinery firms and finds that DX adopters gain roughly 10.6 percent in sales, with effects varying sharply by technology and no measurable return yet from cloud computing or AI. Jihwan Joo and Hong Lee of the Office of Industrial and Economic Data Analysis close with a three-tier framework for industrial policy and competition law, arguing from the Japanese, Chinese, and Korean records that instrument choice rather than the existence of industrial policy determines long-run outcomes.

Taken together, the papers published in this issue of IER address various aspects of one major challenge facing the larger Korean economy: growth is now carried by a handful of technology-intensive sectors, and the industrial policy that built that position is imperfectly suited to broadening it. The forecasts describe the narrowness, the research articles diagnose why it persists, and Naughton supplies the external benchmark against which Korea's own policy choices will be judged.

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