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An Empirical Analysis on Economic Growth in the Big Cities of Korea

  • Journal of Regional Studies and Development
  • Abbr : JRSD
  • 2015, 24(1), pp.85-130
  • Publisher : Institute for Poverty Alleviation and International Development: IPAID
  • Research Area : Social Science > Area Studies > Regional Studies in general > Comparative / Statistical Regional Studies

Kim, Young Duk 1

1부산대학교

Accredited

ABSTRACT

There is substantial inequality among cities of Korea that needs to be understood. Because this income inequality summarizes past growth transitionpaths, understanding the speed of convergence can explain the persistence of regional inequality. In this paper, we examine regional convergence by using a sample of 6 big cities in Korea. We then analyze the patterns of convergence among the cities and compare them to convergence across the big cities. This paper uses the economic growth model with factor mobility barriers suggested by Gennaioli et. al., (2013) to estimate the speed of per capita incomeconvergence across the big cities of Korea. For the estimation, we use a sample of 6 big cities for 1989~2011 period. The estimates of cross-country orcross-region convergence rates may be subject to omitted variable problems due to heterogeneity among countries or regions. This problem may be mitigated in the case of cities within a country. We utilize pooled OLS and fixed effects panel estimation with Huber/White/sandwich robust variance estimation to compare the speed of per capita income convergence across the big cities of Korea. From the estimation of convergence rate, we find that there is significant barriers to factor mobility in the cities. The barriers include lack of local infrastructures such as roads, lack of sound system of public finance and fiscal capacity for local infrastructures, and lack of social openness. These barriers have slowed the transition to policies and financial and social structures that are well suited to providing the local public goods growing cities require. Also, we find that Seoul, the largest city in Korea, influences convergence rates of the other big cities in various ways. The Seoul’s factors supporting its mobilizing resources, its productivity gains/costs, and its factors limiting city size substantially affect barriers to factor mobility in the other big cities. The Seoul’s factors supporting its mobilizing resources include its fiscal capacity, local public goods such as park, and social openness. The Seoul’s productivity gains/costs include its externality arising from urban density of male workers, cost increase arising from mismatch between worker skills and job requirements, economies of scale arising from its export increase, and relative productivity gains from manufacturing expansion. The Seoul’s factors limiting city size are social costs due to pollution such as CO emissions and negative externality arising from car accidents.

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