Public Disclosure Authorized DESCtJSSION h'AiPE& epo rt a .: iD-t) AN EVALUA2IUN Ui DECE,TfALiZ;AfLOX 2ULICxLES Li LEGI{ UP i C';Ai,GLNG LWCAILUN PAT'TEP'ŽS UP'OFT I'LULThNPLJN iuN TW4 SUtJL ^ Public Disclosure Authorized by vyu aiK Lae 'No emsberL1l65 (a.:evised) Public Disclosure Authorized ;4at±r Suorply and lirbi±n iDevilopmeaet L)ep3rtIlenr Oera:tione;s 2oiic St.t Public Disclosure Authorized 'iJ views ;rts¢'l.J 'eroL- ar tCos- ' t?,1h ;ituttl'a * t en.i, -li 8 *, nOt Do, -Laerp-L-etadiae- as rtf cL ii o of rua Ž World I yu: Silk Lee, a Senior Economist in the-4ater Supply and Urbka Development Department, tne 4Torld Bank, directed the industrial location poLicies reseacch project. An earlier version of this paper was pr2sented at tne First Lnternational Convention of Korean Economists, tae Korea Economic Xssociation Meetings, Seoul, AugIust 1984. ia Aouthor aould11 iice to t i-miLK tne staff ineinbers of the Kor2an Jatioaal 3utreau of Stacistics, especi ilLy Ar. Joon-Yong Urn, Oirector of lndustrial Statistics Divisioni, and :Ir, tyun Moo Sntin vwho participated ti1 the data coLlection work. As . Oiane Leedv alnd JIr. kyuee-Lia Pdiic- :^Lovicid research assisLance and Ars. Eui Soon Stiuitz typed tfle .1a,nuseriDt4 9esac rci Project -io.: LPTO 672-91 II.;ircrh Project a.ione: An Evaluationi of Industrial Location Policies for Urban Deconcentration. Abstract Using the annual manufacturing survey data for 1973-81, this paper documents changes in location patterns of employment in the Seoul region. The analysis shows a strong decentralization trend of manufacturing employment in the region. The 1981 manufacturing survey and the sample establishment survey conducted for the research project reveal thac the effeccs of explicit poLicy instruments on firms' location decisions were negligible. 'The paper questions the desirability of excessive decentralization policies being implemented in che presence of already prevalent decentralization trends, and it concludes that an attempt to implement such policies that do not reflect the firms' location beaavior could be prohibitively costly. Table of Contents Page List of Tables ................................................ i 1. Introduction .................................................. 1 2. Changes in Location Patterns of Population and Employment in Korea ...................................................... 1 3. Changes in Location Patterns of PopuLation and Employment in the Seoul Region ........................................... 3 a. Decentralization of Manufacturing Employment ............ .7 b. Components of Changes in Employment Location .............. 11 c. The Incubator Hlypothesis .................................. 17 d. Moving Patterns of MHanufacturing Establishments ............ 19 e. Industrial Composition by City and Province ................ 24 4. The Extent of Policy Impacts ................................... 24 5. Conclusions ................................................... 30 References List of Tables Page 1. Distribution of Population by Province, 1975-1980 ............... 2 2. Distribution of Manufacturing Establishments and Employment by Province, 1973-1978 ........................ 4 3. Changes in Population by City in the Seoul Region, 1975-1978 ................................................ 5 4. Changes in Employment and Establishments by City in the Seoul Region, 1973-1978 ............................... 8 5. Distribution of Manufeturing Employment and Establishments between Seoul and Gyeonggi, 1973-1978 .......................... 9 6. Distribution of Manufacturing Employment and Establishments by City in the Seoul Region, 1973-1980 ................... 10 7. Changes in Employment and Establishments by Ring in the Seoul Region, 1973-1978 ............................ 12 8. Distribution of Manufacturing Employment and Establishments by Ring in the Seoul Region, 1973-1980.................... 13 9. Composition of Changes in Manufacturing Employment by Ring, Seoul Region, 1977-1980 .............................. 15 10. Composition of Changes in Manufacturing Employment by City, Seoul Region, 1977-1980 .............................. 16 11. "Incubation Areas" in Seoul ................................ 18 12. Origin and Destination of Manufacturing Establishments in Korea ................................................. 21 13. Origin and Destination of Manufacturing Establishments in the Seoul Region with Seoul's Subareas ..................... 22 14. Origin and Destination of Manufacturing Establishments in the Seoul Region with Gyeonggi's Subareas ............. 23 15. Distribution of Manufacturing Employment by City and Industry Type in the Seoul Region, 1973 and 1978 ......... 25 16. Distribution of iManufacturing Employment by Province and Industry Types, 1973 and 1978 ........................ 26 17. Relocation Incentive Schemes .................................29 18. Important Government Policy Measures Affecting Relocation Decisions ..................................... 31 ii 1. Introduction This paper has been prepared as part of a research effort at the World Bank to study the impacts of spatial policies intended to decentralize economic activity from large urban centers. The ration-ae and the historical background of such policies implemented in Korea are treated in other project papers by Kwon (1985), and Choe and Song (19b4). Ln order to formulate sound spatial policies and to implement plans and programs with less costs, it is essential for policy makers to underscand (1) the trend of employment location patterns and (2) how firms' location behavior in response to operations of the markets contributes to such trends. Using the annual manufacturing survey data for 1973-1981, this paper documents the observed changes and trends in the location patterns of manufacturing employment in the Seoul region; then, the paper reveals the degree of effectiveness of various policy instruments implemented in the region based on the results of special surveys conducted for the project; finally, some conclusions are drawn regarding the desirability of decentralization policies and implied welfare losses resulting from implementing such spatial policies. 2. Changes in Location Patterns of Population and Employment in Korea The geographic distribution of population in Korea changed markedly during the past two decades. The recent trend can be vividly summarized by the population censuses of 1975 and 1980. Table I shows that during 1975-1980, Seoul and Busan (two "special cities"), and Gyeonggi province where Seoul is located, were the only three areas that gained the share of population. The annual growth rate of population Table 1: DISTRIBUTION OF POPULATION BY PROVINCE, 1975-1980 (in thousands) 1975 1980 Annual Average Persons % Persons % Growth Rate (%) Seoul 6,890 19.8 8,367 22.3 3.96 Busan 2,453 7.1 3,160 8.4 5.20 Gyeonggi 4,039 11.5 4,935 13.2 4.09 Gangweon 1,862 5.4 1,792 4.8 -0.76 Chungbug 1,522 4.4 1,424 3.8 -1.32 Chungnam 2,949 8.5 2,956 7.9 0.05 jeonbug 2,456 7.1 2,288 6.1 -1.41 Jeonnam 3,984 11.5 3,779 10.1 -1.05 Gyeongbug 4,859 14.0 4,962 13.3 0.42 Gyeongnam 3,280 9.5 3,323 8.9 0.26 Jeju 412 1.2 463 1.2 2.36 All 34,707 100.0 37,449 100.0 1.53 Data Source: Population and Housing Census, 1975, 1980, National Bureau of Statistics, Economic Planning Board. -3- was much higher there than the national average. Seoul had a net gain of 295,000 persons each year while Gyeonggi and Busan gained 179,000 and 141,000 persons per year respecti-v,ly. On the other hand, four provinces, including the southwest Jeonla region, experienced a net loss of population while other provinces had virtually no net changes with the the exception of Jeju island. Ln the late 70's, the population continued to shift to the Seoul and the Busan regions. Table 2 describes comparable changes in the distribution of manufacturing employment in Korea. Between 1973 and 1978, two manufacturing census years, Busan, Gyeonggi, and two southeastern provinces (Gyeongbug and Gyeongnam) gained the share of manufacturing employment; all other regions including Seoul lost their shares. Gyeonggi had the highest annual growth rate of manufacturing employment, almost twice the national average, while Seoul's growth rate was one of the lowest in the country. It should be noted that the growth rate of manufacturing employment in the two southeastern provinces was about four times higher than that of establishments, indicating the births of large establishments in that region which includes the Ulsan and Pohang industrial areas. 3. Changes in Location Patterns of Population and Employment in tne Seoul Region In this study the Seoul region includes the city of Seoul and Gyeonggi province where Seoul is located. Table 3 shows that during 1975-1980, the share of population between Seoul and Gyeonggi stayed constant with the same annual growth rate of about 4 percent. Within Gyeonggi province however, the six satellite cities (see Figure 1) grew Table 2: DTSTRIBUTOION OF MANUFACTURING ESTABLISIMENTS AND EMPLOYMENT BY PROVINCE, 1973-1978 Establishment Empployment 1973 1978 Annual Average 1973 1978 Annual Average Number 7 Numniber % Growth Rate(%) Persons % Persons % Growth Rate(%) Seouil 5,832 25.0 7,752 26.0 5.9 409,916 33.7 539,192 25.1 5.6 Busan 2,020 8.7 3,282 11.0 10.2 204,152 16.8 374,873 17.4 12.9 Gyeonggi 2,437 10 5 5,229 17.5 16.5 170,928 14.1 492,136 22.9 23.6 Cangweoni 849 3.6 913 3.1 1.5 18,654 1.5 23,254 1.1 4.5 Chungbug 709 3.0 692 2.3 -0.5 25,675 2.1 34,925 1.6 6.3 Chungnam 1,785 7.7 1,837 6.2 0.6 57,975 4.8 83,595 3.9 7^6 Jeonibug 1,240 5.3 1,191 4.0 -0.8 39,010 3.2 55,286 2.6 7.2 Jeonnam 2,717 11.7 2,146 7.2 -4.6 44,614 3.7 53,136 2.5 3.6 Gyeongbuig 3,886 16.7 4,621 15.5 3.5 131,949 10.9 264,072 12.3 14.9 Cyeonignain 1,588 6.8 1,944 6.5 4.1 109,588 9.0 225,817 10.5 15.6 Jeju 229 1.0 255 0.9 2.2 3,920 0.3 4,635 0.2 3.4 Other 1.