Korean Defense Exports in an Era of Conflict: Opportunities and Challenges

In 2022, South Korea achieved an unprecedented milestone in defense exports, as orders surged to an impressive USD 17.3 billion, a record- breaking achievement in its history as an arms exporter. This remarkable growth can be attributed to growing global defense expenditures in the wake of the Russia-Ukraine war and the increased demand in Europe. The military aid to Ukraine created shortage of defense products, which has further increased demand. The Korean defense industry has capitalized on this opportunity, bolstered by its competitive edge in swift product delivery, a well-established mass production infrastructure, and an outstanding price-to-quality ratio. Of note is the surge in demand for Korean arms from Eastern European nations, which has propelled the country into the ranks of the world’s top five defense exporters. Future export prospects are promising. Global defense spending is expected to continue its upward trajectory amid the escalating geopolitical crisis in Europe, despite the effects of the COVID-19 pandemic and slowing economic growth. Germany, for instance, has decided to invest EUR 100 billion in a special defense fund to modernize and expand its armed forces. Furthermore, defense spending as a percentage of GDP in Eastern Europe and the three Baltic states is poised to exceed the NATO requirement of two percent by 2024. Should the current trend persist, Korea could eventually rank among the world’s top four defense exporters. However, achieving this goal will necessitate a nuanced and refined policy approach. Conducting a comprehensive assessment of the economic impact of growing defense exports is the first step toward positioning the defense industry as a driver of growth. In this paper, I project changes in defense sales and employment under the assumption that the value of annual export orders eventually reaches USD 20 billion. Furthermore, I offer a set of policy recommendations aimed at propelling Korea into the upper echelons of the world’s defense exporters and harnessing the full potential of the burgeoning defense industry as an engine of economic prosperity. Thank you for reading this abstract of a report from the Korea Institute for Industrial Economics and Trade! Visit us on YouTube: https://www.youtube.com/watch?v=Q36v30l5CV0 Visit us on Instagram: https://www.instagram.com/worldkiet/ Visit our website: http://www.kiet.re.kr/en