The investment income reached only 4.6% of the current account in 2015 but increased to 28.9% by last year.
Dividend and interest income earned by Korean companies and citizens from overseas investments surged to record levels last year. While the country previously relied solely on commodity exports to earn dollars, evaluations indicate that Korea is now transitioning to an advanced economy structure that generates substantial foreign currency from overseas investment assets as well.
According to the balance of payments in November 2024 released by the Bank of Korea on Jan. 9, the cumulative investment income balance from January to November last year was $29.406 billion. In just 11 months, it exceeded the record high of $28.565 billion achieved in 2024. This represents a 24% increase compared to the same period the previous year ($23.695 billion). Considering that investment income continued to grow in December, the annual surplus likely exceeded $30 billion.
The investment income balance is calculated by subtracting the amounts received by foreigners domestically under the same categories from the dividend and interest income received by Korean nationals as a result of overseas investments. In 2015, investment income balance accounted for only 4.6% of the current account balance, but this proportion increased to 28.9% last year.
The direct investment income balance, which companies received from overseas subsidiaries and other sources, recorded a surplus of $13.448 billion, a 7.5% increase from a year earlier. The portfolio investment income balance from stock and bond investments by individuals and pension funds reached a surplus of $7.578 billion, setting a new record high.
Korea’s traditional strength in goods balance also recorded a substantial surplus due to the semiconductor boom. The goods balance for January-November last year was a surplus of $107.022 billion, 6.9% higher than the annual surplus of $100.127 billion achieved in 2024. Although the services balance deficit expanded, the combined growth in goods balance and primary income balance is estimated to have pushed last year’s current account surplus beyond $115 billion. This figure exceeds the previous record high of $105.1 billion from 2015 by approximately $10 billion.
Song Jae-chang, Director of the Financial Statistics Department at the Bank of Korea, stated, “As both goods balance and primary income balance increased, we are transitioning to an advanced country-type balance structure that earns dollars based on investment alongside our existing export strengths,” adding, “Even if exports fluctuate, investment income will serve as a safety net.”
Investment income balance moved out of deficit in 2011. The surplus trend emerged three years before Korea became a net external creditor nation in 2014. The substantial expansion of investment income balance surplus, which had maintained levels of several billion dollars, occurred in 2019. That year recorded a surplus of $13.71 billion, surpassing $10 billion for the first time in history, and the growth trend has continued annually since then.
In 2023, as the government decided not to impose corporate taxes on 95% of dividends that companies receive from overseas subsidiaries, companies began bringing dividends back to Korea in large volumes. The direct investment income balance, which aggregates items related to corporate investment, recorded a surplus of $16.392 billion in 2023, achieving a record high. Through November last year, it maintained high levels with a surplus of $13.448 billion.
Starting in 2024, the impact of increased overseas investments by individuals and pension funds began to grow significantly. The portfolio investment income balance, which includes dividends and interest received from overseas stock or bond investments, increased approximately threefold from $2.647 billion in 2021 to $7.491 billion in 2024. For January-November last year, it recorded a surplus of $7.578 billion.
As investment income balance increases, stable supply and demand of dollars becomes possible even when exports decline. Unlike exports, which are heavily influenced by economic cycles, investment income does not fluctuate significantly. Diversifying assets across various overseas countries also helps reduce volatility.
Indeed, recent situations where exports have been volatile have seen investment income balance complement current account surpluses on multiple occasions. These include 2019, when Japan imposed export restrictions on “materials, parts, and equipment,” and 2022-2023, when global trade was universally contracted due to COVID-19.
In 2019, while goods balance surplus decreased from $110 billion the previous year to $79.8 billion, an investment income balance surplus of $13.71 billion compensated for this decline. In 2022, investment income balance recorded $21.19 billion, significantly exceeding the goods balance surplus ($15.6 billion). During this period, the ratio of investment income balance surplus to total current account surplus rose to around 80%. Professor Heo Jun-young from Sogang University’s Department of Economics stated, “If exports serve as the primary safety net defending against domestic demand contraction, the investment income balance surplus resulting from increased investment can serve as a secondary safety net when exports contract.”
While the current account structure is stabilizing as investment income balance surplus grows due to increased overseas investments by companies and individuals, some point out that how the earned dollars are spent is more important. This is because positive factors from current account surplus are not materializing, such as exchange rates not falling despite massive current account surpluses as dollars are not flowing into the domestic market recently.
Professor Kang Sung-jin from Korea University’s Department of Economics pointed out, “Companies are reinvesting overseas the dollars they earn abroad rather than repatriating them domestically,” adding, “Looking at the government’s recent amendments to commercial and labor laws, there seems to be little incentive for companies to bring dollars domestically for investment.”
