The Bank of Korea has published an issue note assessing how the semiconductor upturn is affecting Korea’s terms of trade and domestic demand. First-quarter gross domestic income rose 13.2% year on year, compared with 3.8% growth in gross domestic product, as higher semiconductor export prices generated substantial trading gains. Unlike previous terms-of-trade improvements driven mainly by lower oil import prices, the current export-price-led episode reflects structural demand associated with artificial intelligence and could prove larger and more persistent. The gains are expected to support consumption through higher wages and equity wealth and to accelerate semiconductor investment because stronger global demand is driving corporate profitability. However, the benefits are concentrated in the IT sector and among higher-income and wealthier households, while reliance on imported production equipment, outward foreign investment and weak non-IT investment could limit domestic spillovers. The paper calls for stronger links across Korea’s semiconductor ecosystem while warning that increased dependence on IT could amplify cyclical, fiscal and financial volatility. Policymakers should also monitor whether gains flow into real estate rather than productive investment and whether the concentration of resources in IT weakens other industries or deepens income imbalances.
Bank of Korea2026-08-04
Bank of Korea finds semiconductor-led terms-of-trade gains could produce stronger domestic-demand spillovers
The Bank of Korea finds that the semiconductor-led improvement in Korea’s terms of trade could support stronger consumption and faster investment than past import-price-led episodes. First-quarter gross domestic income grew 13.2% year on year, far exceeding GDP growth of 3.8%. Concentration of the gains in IT and wealthier households, as well as imported equipment and outward investment, could limit broader spillovers and increase economic volatility.