This study was carried out to identify the problems and policy alternatives for the improvement of living conditions and environmentally friendly agriculture. The results of surveys on the current situations of living conditions in the rural areas revealed that the main cause of depopulation in Korean rural villages was the lack of social infrastructure and income sources. The current government policies for agriculture geared mainly for improvement of international comparative competitiveness will result in the further disadvantage against the mountainous regions with marginal agricultural lands. Therefore, it is recommended that the agricultural policy should be complemented by the environmental and social policies in the less favoured areas. This can be justified by the fact that the demand for environmental public goods such as recreational opportunities in rural settings uncontaminated by the industrial wastes is growing.