Analysis of the Local Extinction Response Fund's Operations

 

Published on July 1, 2026
Published by Social Administrative Program Evaluation Division



 

   Since the 2010s, Korean society has faced a structural crisis in which local labor and economic vitality have been undermined due to population decline and an outflow of youth from non-metropolitan areas. These demographic changes threaten the long-term development and viability of such regional communities by undermining the growth foundations of regional industries and the fiscal sustainability of local governments. In response, the government established the Local Extinction Response Fund in 2022 and has since operated the Fund with an annual budget of KRW 1 trillion, implementing a wide range of projects in areas experiencing population decline.
   Against this backdrop, this report provides a comprehensive analysis of the Fund's recent operations and performance. Analysis finds that the Fund serves as a key fiscal instrument to respond to population decline and reduced vitality in regional communities, although improvements are needed in terms of institutional design and operations. For instance, customized support has not been provided that sufficiently takes regional characteristics into account despite differences in demographic structures as well as industrial and residential conditions. Also, projects led by local governments alone are limited in their ability to respond to population movements across living areas and the need for regional development.
   In addition, approximately KRW 950 billion of the Fund is left unspent as of the end of 2025. While the Investment Fund for Regional Revitalization has achieved certain outcomes in encouraging private investment, its indirect management structure led by private asset managers may limit incentives to invest in projects with a high degree of public interest. Moreover, as the existing performance evaluation system relies on output indicators, such as the scale of a facility or the implementation progress of a project, the objective assessment of the Fund's impact on improving residential conditions and revitalizing regional economies is limited.
   To enhance the policy effectiveness of the Local Extinction Response Fund, establishing a customized support system that reflects regional characteristics and strengthening cooperative frameworks at the broader level beyond local governments is necessary. In addition, the concept of local extinction and the related policy objectives must be more clearly defined, and an outcome-based performance evaluation system needs to be established to enable objective analysis of residential population increases and their spillover effects on regional economies. Lastly, the timing and scale of the Fund's contributions need to be adjusted based on actual project needs to enhance the efficiency of resource allocation and the effectiveness of the fund‘s operations.