Release of medium-to-long term outlook on respective agenda based
on the analysis of pending macroeconomic issues

Public Finance

Policy Study

A Study on the Improvement of Under-developedness Index

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  • Author LEE. Jongyearn
  • Date 2013/12/31
  • Series No. Policy Study 2013-10
  • Language Korean
SUMMARY Recently, various policies have been implemented to attain balanced regional growth including distributing population and resources to outside of Seoul metropolitan area. In particular, relative developedness is considered when prioritizing investments to large-scaled public investment projects. Preliminary feasibility studies, for example, adopt and reflect ‘under-developedness index (UDI)’ to consider balanced regional growth when making final conclusion for whether to enforce or not.

This study seeks a more systematic and objective way to calculate a new UDI. Using statistical methods, it calculates a new UDI and compares it to existing UDI to validate a new UDI’s power to reflect reality, i.e., what experts recognize through their research and work experience. Also, it attempts to find policy implications with regard to balanced regional growth by interregional comparisons of results obtained as a byproduct of analyses. The outcome of these comparisons is expected to be an empirical evidence of which aspects should be considered and/or emphasized when making distributional policies for balanced regional growth.

To fulfill its purpose, this study uses factor analysis to screen appropriate indicators that explains developedness of different regions well after collecting various indicators that have been adopted in past similar indices, and to extract factors that constitutes developedness (or under-developedness) of each region. As a result, three independent factors named ‘regional vitality,’ ‘degree of urbanization,’ and ‘economic power of residents’ are extracted, which effectively explain screened indicators. Subsequently, a survey methodology on experts are introduced to obtain relative importance of those three factors, and a new UDI is calculated using the factor scores and relative weights on them.

To validate the superiority of new UDI to old one, the exploded logit model is applied on survey data from experts in regional economics and policy. Results confirm the new UDI meets reality more than old UDI both at the level of bigger administrative districts (metropolitan cities and provinces) and smaller ones (cities and counties.) Also, a sensitivity analysis on weights of new UDI confirms new UDI's robustness.

Additionally, the aspect of ‘regional vitality’ explains the variation of indicators most as well as turns out most uneven over regions. It conjectures the objective of balanced regional growth would be attained when the unbalance in this aspect is resolved. More in-depth research on this conjecture is remained as a future research task.
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