Smart-Green Industrial Complexes: Policy Analysis and Implications

In response to the rapidly changing industrial landscape amid the Fourth Industrial Revolution (4IR), net-zero race, and aging industrial infrastructure, the Korean government has designated 15 outdated industrial complexes as Smart-Green Industrial Complexes (SGICs) since 2019. Despite the Yoon Suk-yeol government has declared its commitment to SGIC policy continuation, a dearth of research has produced only scant evidence of the policy’s continued implementation. As three years have passed since the introduction of the SGIC policy, it is now time to analyze its effects and establish a strategy to enhance SGICs nationwide. This study analyzes the necessity of the SGIC policy from microeconomic and environmental-economic perspectives. Smartization, in theory, helps firms maximize productivity and profits by enabling them to produce more goods and services at the same cost (or less), contributing to the Pareto-optimization of the economy as a whole. Furthermore, SGICs provide tenant firms with energy-saving infrastructure, contributing to emissions reductions and allowing firms to share in the benefits of agglomeration. Firms at designated SGICs experienced a 6.13 percent increase in output, a 6.88 percent increase in exports, and an 8.91 percent increase in labor productivity from the first quarter of 2019 (Q1 2019) to Q2 2022. Our propensity score matching (PSM) and difference-in-difference (DID) analysis also confirms (at a significance level of one percent), that small and medium-size (SMEs) tenant firms subject to independent auditing generated roughly 2.5 percentage points more in average annual revenue and one percentage point more in operating margin (that is, the operating income-to-revenue ratio) than comparable enterprises not located in SGICs. Based on these findings, we propose a network structure for the efficient operation of SGICs, including not only the 10 leading industries the Korean government actively encourages joining SGICs but also other SGIC-related projects at public agencies. Our menu of necessary policy support measures presents a roadmap for the evolution of SGICs along with key performance indicators (KPIs) for effective performance management at these complexes. Finally, we recommend that the Korean government match the investments made by cluster unions from the Industrial Complex Environment Improvement Fund to encourage private sector investment.