Artificial intelligence is increasingly treated by governments as strategic economic infrastructure, comparable to electricity, semiconductors, or telecommunications networks. The emergence of large-scale AI systems has intensified concerns about technological dependence on foreign digital platforms, leading many countries to pursue what is often called “sovereign AI.”

Sovereign AI refers to a nation’s ability to develop and operate AI systems using domestic computing infrastructure, data ecosystems, semiconductor supply chains, and AI models. In economic terms, sovereign AI policies resemble industrial policy targeting a general-purpose technology (GPT)—similar to historical government investments in railroads, electricity, or microelectronics.

Among advanced economies, South Korea provides one of the clearest examples of a coordinated sovereign AI strategy, combining large public investments, computing infrastructure expansion, and industrial transformation policies.

1. AI as National Industrial Policy

South Korea’s government has explicitly framed AI as a core growth engine and a national strategic industry. The country aims to become one of the world’s top three AI powers, alongside the United States and China. (Korea to more than triple AI budget to $7.27 bil. in 2026 - The Korea Times)

This policy shift reflects several macroeconomic pressures:

• slowing productivity growth
• demographic decline (rapid population aging)
• dependence on exports in manufacturing sectors

To address these challenges, the government is deploying expansionary fiscal policy targeting AI-driven industrial transformation. (Reuters)

In the language of economic policy, this resembles a mission-oriented industrial policy, where governments coordinate investments across multiple sectors to accelerate technological development.

2. Scale of Government Investment

South Korea’s AI strategy is notable for the scale of fiscal commitment.

The 2026 national budget proposes **10.1 trillion won ($7.27 billion) in AI spending**, more than triple the previous year’s level. ([The Korea Times](https://www.koreatimes.co.kr/amp/economy/20250829/korea-to-more-than-triple-ai-budget-to-727-bil-in-2026?utm_source=chatgpt.com 'Korea to more than triple AI budget to$7.27 bil. in 2026 - The Korea Times’))

This investment is part of a broader expansion in R&D spending, with the national research budget rising to 35.3 trillion won ($25 billion). (Korea Joongang Daily)

Figure 1

Government AI Budget Growth

AI Budget (trillion won)

12 |                         █
10 |                         █ 10.1
 8 |
 6 |
 4 |              █
 2 |              █ 3.3
 0 |____________________________
        2025           2026

Interpretation

• AI spending increases by over 200% in one year
• Represents one of the fastest expansions in technology policy spending among OECD economies

From an industrial policy perspective, the objective is to stimulate private sector investment and technological spillovers.

3. Building National AI Infrastructure

A central component of sovereign AI is the creation of national computing infrastructure, particularly GPU clusters and data centers.

South Korea plans to rapidly expand AI computing capacity through government procurement and infrastructure projects.

Key initiatives include:

• securing 15,000 additional high-performance GPUs
• expanding the national pool to around 35,000 GPUs (아시아경제)
• building national AI computing centers
• developing AI data infrastructure platforms

Figure 2

National AI Computing Capacity Expansion

GPU Units (thousands)

40 |                     █
35 |                     █ 35
30 |
25 |             █
20 |             █ 25
15 |
10 |
 5 |
 0 |________________________
      2024          2026

The goal is to ensure domestic firms have access to training compute capacity, which has become a key bottleneck in AI development.

Economically, compute infrastructure functions like digital capital stock, enabling innovation across multiple industries.

4. AI Diffusion Across Industrial Sectors

South Korea’s AI strategy also emphasizes industrial transformation, integrating AI across existing manufacturing sectors.

Government plans include 6 trillion won investment over five years to deploy AI technologies across industries such as:

• robotics
• automotive manufacturing
• shipbuilding
• electronics
• smart factories (아시아경제)

Figure 3

Sectoral Targets of Korea’s AI Industrial Policy

Share of AI Transformation Funding

Manufacturing        ██████████████
Robotics             ██████████
Automotive           █████████
Shipbuilding         ████████
Consumer Products    █████
Public Services      ███

This strategy reflects South Korea’s comparative advantage in advanced manufacturing and industrial engineering.

Rather than focusing solely on software platforms, the government is attempting to integrate AI into physical production systems.

5. Sovereign Foundation Models

Another key pillar of sovereign AI policy is the development of domestic foundation models.

South Korea aims to avoid dependence on foreign AI platforms by supporting domestic large language models (LLMs).

One example is K-EXAONE, developed by LG AI Research, a multilingual model with 236 billion parameters. (arXiv)

Domestic models are important for several reasons:

• linguistic specialization (Korean language)
• data sovereignty
• industrial applications tailored to domestic sectors

From an economic perspective, foundation models function as platform technologies, potentially capturing significant rents in the digital economy.

6. AI Supply Chains and Semiconductor Advantage

South Korea’s sovereign AI strategy is closely tied to its global leadership in semiconductors.

The country is home to two dominant memory chip producers:

• Samsung Electronics
• SK Hynix

These firms play a crucial role in AI hardware supply chains, particularly in high-bandwidth memory (HBM) used in AI accelerators.

Figure 4

AI Value Chain and Korea’s Position

AI Value Chain

Data → Models → Compute → Applications
         ↑        ↑
      Korea    Korea
    (LLMs)   (Semiconductors)

This positioning allows Korea to capture value both upstream (hardware) and downstream (AI applications).

7. Industrial Policy Framework

South Korea’s sovereign AI strategy combines multiple policy instruments.

Table: Key Industrial Policy Tools

This policy mix resembles the developmental state model historically used by East Asian economies, but applied to digital technology.

8. Sovereign AI and Global Technological Competition

South Korea’s strategy reflects broader global trends in AI geopolitics.

Countries increasingly compete across three layers of the AI stack:

1. Compute infrastructure (GPUs, data centers)
2. Foundation models
3. AI-enabled industries

Figure 5

Global Sovereign AI Strategies

Country        Strategy

United States  Private platform dominance
China          State-directed AI ecosystem
Europe         Regulatory + strategic autonomy
South Korea    Industrial AI + semiconductor integration

South Korea’s approach is distinctive because it focuses on industrial AI integration rather than pure platform competition.

Conclusion

South Korea’s sovereign AI strategy illustrates the re-emergence of industrial policy in advanced economies.

By combining large-scale public investment, national computing infrastructure, domestic AI models, and industrial transformation, the country aims to secure technological autonomy while strengthening its role in global AI supply chains.

From an economic perspective, sovereign AI represents the latest stage in the evolution of industrial policy—one centered on digital infrastructure, platform technologies, and data-driven productivity growth.