KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Policy Study KOR Transport Policy for Megacity Regions: Insights from Commuting and Travel Patterns

This study employs a network community detection approach to identify megacity regions in South Korea based on commuting and travel flows between municipalities―cities (si), counties (gun), and districts (gu)―and defined boundaries. The analysis finds 16 megacity regions in 2000, 19 in 2005, 16 in 2010, 17 in 2015, and 15 in 2020.

Comparing these findings with the designated metropolitan areas under the Special Act on Metropolitan Area Transport Management, the study proposes revisions to these designations. Specifically, the Busan-Ulsan area should be split into two regions, Busan-Gyeongnam and Ulsan-Pohang-Gyeongju. Additionally, Changnyeong-gun, currently part of the Daegu area, should be reassigned to the Busan-Gyeongnam area, and Gimcheon-si should be incorporated into the Daegu area. For the Gwangju area, expansion could be considered with additional municipalities of Yeongam, Muan, Mokpo, Gokseong, Haenam, Yeonggwang, Gangjin, Jangheung, Wando, and Jindo. The Daejeon area could also consider adding Buyeo, Yeongdong (Chungbuk-do), and Muju (Jeonbuk-do), while Cheongju and Boeun in the existing Daejeon area appear to form a different cluster. Furthermore, given population size and constituent municipalities, the Jeonbuk area―encompassing Jeonju, Wanju, Iksan, Gimje, Gunsan, Jeongeup, Seocheon, Namwon, Buan, Imsil, Gochang, Jinan, Sunchang, and Jangsu―should be recognized as an additional metropolitan area under the Special Act.

This study also identifies anchor and hub cities (nodal points) within each megacity region and proposes a framework for establishing a polycentric spatial structure, a key feature of megacity development. For instance, within the Seoul Metropolitan Area (A), Gangnam and Jung-gu in Seoul serve as major inflow nodes, while Seongnam and Suwon in Gyeonggi-do are major outflow nodes. To support megacity development, it is necessary to build a transport system that connects these nodes with surrounding municipalities.

Among large-scale transport infrastructure projects for megacity development, railway service expansion is identified as the most feasible option, with the greatest potential to reshape the centrality of cities, counties, and districts. Accordingly, this study assesses the impact and sustainability of railway services on the centrality. The findings indicate that, outside the Seoul Metropolitan Area (SMA) and excluding regional metropolitan cities, railway expansion consistently increases inflow degree centrality, reinforcing the crucial role of rail networks in fostering polycentric megacities.

Based on these findings, transport infrastructure recommendations for megacity development are proposed. First, the definition of metropolitan transport under the Special Act should be expanded from 'travel between cities and provinces within a metropolitan area' to travel between cities, counties, and districts that form integrated living and economic areas.' This expansion would provide a legal basis for transport infrastructure provision to support megacity development. Regarding funding mechanisms, the study proposes strengthening the user pays principle, including expanding both the entities responsible for formulating metropolitan transport improvement plans and the entities subject to transport facility charges. In particular, to secure funding for railway construction and capture land value gains around transit-oriented developments (TOD), the study suggests an integrated approach that effectively aligns railway TOD with railway construction projects.

Lastly, an integrated governance framework should be established to coordinate transport projects for megacity development. To that end, it emphasizes the importance of setting shared objectives and consolidating authority and responsibilities within a flexible governance structure.

Summary

Research Monograph KOR A Study on Regional Inequalities andRegional Development Strategy

Among OECD member countries, South Korea has a wide disparity in Gross Regional Domestic Product (GRDP) in absolute terms, with the gap widening further between 2015 and 2020. A similar analysis of per capita GRDP, which accounts for individual income distribution, ranks Korea higher―indicating a wider disparity― than the United States and Japan in terms of both absolute and relative terms. Overall, Korea faces significant disparities both between and within regions compared to its peers. Against this backdrop, this study empirically analyzes the current state and key drivers of the inter- and intra-regional disparities, providing policy insights for balanced regional development. It consists of two parts: (1) an examination of the impact of inter-regional disparities on population movement, and (2) an analysis of intra-regional income inequality.

Chapter 2 examines factors influencing representative indices for four key sectors―employment, education, housing infrastructure, and childcare―selected for their high relevance to the Korean context. The analysis covers 227 cities, districts, and counties across Korea from 2013 to 2022. This study empirically assesses how these four sectors influence total population (stock) and population inflow (flow) while considering mobility patterns by age group.

Findings show that better local conditions in employment and housing infrastructure contribute to growth in total population and population inflow. By age group, enhanced education and childcare services have a positive effect on attracting individuals in their 30s and 40s. In the Seoul Metropolitan Area, improvements in employment, education, housing, and childcare serve as primary drivers of population inflows. However, in non-metropolitan areas, even improvements across all four sectors do not significantly influence population inflows or mobility patterns across their administrative boundaries. Overall, the effects of sectoral improvements on population growth and mobility appear asymmetric between the Seoul Metropolitan Area and non-metropolitan areas. The stronger effects observed in the Seoul Metropolitan Area are likely attributable to differences in sectoral quality or a prevailing preference for the metropolitan area, where strengthening the key sectors in non-metropolitan areas alone may not be sufficient to drive residential relocation.

Based on the findings, the study presents the following policy recommendations for regional development. First, regional development strategies should adopt a coordinated, multi-sectoral investment approach, concurrently targeting dimensions like job creation, education, housing, and childcare, alongside a strategy to comprehensively enhance living conditions. To date, policy efforts have focused on single-sector investments, which have had limited effects on population inflows. Given the differing impacts on population inflows between metropolitan and non-metropolitan areas, narrowly focused investments alone are unlikely to serve as effective incentives for attracting people, highlighting broad-based investments as a vital policy tool for boosting regional appeal.

Second, strengthening cultural, educational, and social welfare infrastructure that reflects local characteristics is essential for improving residents' quality of life. Mobility patterns show that within non-metropolitan areas, movements mainly occur within the same cities and provinces, with limited inflows into other non-metropolitan areas. However, outflows to the metropolitan area increase when metropolitan conditions improve, suggesting the need to develop non-metropolitan areas into more viable and attractive living environments that can better compete with the metropolitan area in both quantity and quality.
Third, non-metropolitan areas need a sustainable, long-term regional development model led by local governments, together with a paradigm shift in the existing balanced regional development policy. Since qualitative improvements across all sectors take time, regional development strategies should move away from short-term population growth targets and prioritize long-term effectiveness based on regional strengths and weaknesses.

In conclusion, comprehensive improvements in sectors like employment, education, housing, and childcare through a population mobility-centered approach can help non-metropolitan areas to transform into more attractive places to live and work, complemented by tailored development strategies that reflect local characteristics.

Chapter 3 examines trends in income inequality at both national and regional levels in Korea. Using Gini coefficient decomposition analysis, the study assesses the extent to which inter- and intra-regional disparities contribute to overall income inequality. It further explores the relationship between city/provincial-level income inequality and per capita Gross Regional Domestic Product (GRDP) through a regression analysis covering 24 years (1998~2021). Additionally, the contribution of different income sources to national and regional income inequality is analyzed, with a focus on variations by age group of household heads, categorized as young (39 years and under), middle-aged (4064 years), and elderly (65 years and older).

The key findings on income inequality are as follows. First, decomposing the overall Gini coefficient into inter- and intra-regional components shows that inter-regional inequality has declined over time. In contrast, intra-regional inequality has remained relatively stable, making it a more significant factor in overall inequality. Analysis of the relationship between intra-regional income inequality and per capita GRDP at the city/provincial level based on such trends reveals an "N-shaped" pattern, where income inequality initially increases with economic growth, then decreases, and subsequently rises again. Additionally, higher average age of household heads, higher labor income across all age groups, and higher social insurance income among older adults are associated with lower income inequality. Notably, in non-metropolitan areas, the negative relationship between labor income and inequality is more pronounced.

Next, analysis of the contribution of different income sources to inequality indicates that reducing disparities across income categories―labor, real estate, other, transfer, social insurance, and financial―would be crucial for alleviating overall income inequality in the listed order. Over time, labor income inequality has worsened in the metropolitan area compared to non-metropolitan areas. Among young household heads, the contribution of labor income inequality to overall inequality was initially lower in the metropolitan area than in non-metropolitan areas, but this trend reversed around the mid-2010s and has remained higher since then. For older households, while no consistent pattern emerges, labor income inequality in non-metropolitan areas has been steadily increasing since the early 2000s.

Findings in Chapter 3 show that income inequality during economic growth follows an N-shaped pattern rather than an inverted U-shaped pattern, indicating that rising income inequality is not merely a transitional phase of economic growth but may persist or even intensify depending on various socioeconomic conditions. Therefore, continual monitoring of income inequality trends and efforts to mitigate its deepening should be integral to national and regional development strategies. Moreover, based on the analysis of income source contributions to inequality, reducing labor income disparities among young people is critical for alleviating overall income inequality in the metropolitan area. In non-metropolitan areas, the increasing labor income inequality among older adults requires particular attention. While labor income constitutes a relatively small share of their total income, its growing inequality could have a significant impact, especially given the faster population aging in non-metropolitan areas. This underscores the need to strengthen stable labor income sources for older adults in non-metropolitan regions.

Summary

Policy Study KOR Strategies for Upscaling Regional Innovation Clusters: Empricial Analysis and Case Studies

This study investigates the growth dynamics of businesses within regional clusters through empirical analysis and identifies the success factors of regional innovation clusters through case studies. Adopting a practical approach, the empirical analysis uses the data from industrial complexes―recognized as the foundation of Korea’s industrial cluster policy―in connection with the establishment level data from Mining and Manufacturing Survey. The empirical analysis addresses three questions: (1) Do businesses within clusters demonstrate superior growth performance compared to those outside? (2) What specific attributes of cluster-based businesses contribute to their growth patterns? In particular, do they demonstrate linkages with regional innovation capacity? (3) How does cluster membership influence recovery from economic crises such as the global financial crisis?

The case studies focus on Pangyo Techno Valley and the Wonju Medical Device Industry Cluster, analyzing their current status, success factors, and challenges to derive policy insights.

Key findings and policy implications are summarized as follows:

First, businesses located in industrial complexes outperform those outside both in employment and production. According to the analysis model, the businesses in industrial complexes demonstrated approximately 3~5% additional growth in employment, production, and value-added during the investigated period. This trend is consistent across most types of industrial complexes. However, their performance shows no significant correlation with the region’s innovation capacity, suggesting limited impact from the collaboration with regional innovation actors on business outcomes.

Second, there are no additional effects from the government’s cluster policies, such as Free Economic Zones and Research and Development (R&D) Special Zones, at least within the scope of the empirical analysis. While further research is needed, these findings indicate that overlapping designations and investments may dilute the effectiveness of existing cluster policies, calling for more cautious and strategic planning in future cluster policy implementation. As the Korean government is introducing Opportunity Development Zones, it should evaluate the effectiveness of previous policies and better utilize already-invested resources by connecting with existing clusters.

Third, businesses within regional clusters exhibit stronger recovery from external shocks, such as economic crises, than those outside. This advantage appears to stem from the agglomeration of industries within clusters, facilitating information sharing and access to resources. These attributes are noteworthy for building sustainable and resilient regional economic ecosystems. Moreover, the case studies reveal that the establishment and development of regional innovation clusters rely on key success factors, including leadership by regional stakeholders and the capacity to develop and manage these clusters―specifically, planning led by local actors, tight-knit collaboration among innovation actors, and cooperative governance to mobilize resources. While generalizing these findings requires caution, they provide valuable insights for fostering successful regional innovation clusters.

Summary

Research Monograph KOR Korean Unique Regulations in Housing Market

We study regulations in the housing market, which are very unique and have great influences in Korea. Due to COVID-19, the housing market have experienced rapid changes. Thus, the government responded boldly with unprecedented policies. Among others, 3 special regulations are on the table for discussion. The first is the Land Transaction Permit, which was implemented to reduce demand on housing in specific regions. Second, the Price Cap on New Houses is investigated for housing supply policy. The final is a regulation on the contract renewal claims in the housing rental market.

Chapter 2 analyzes the direct and indirect price effects of the Land Transaction Permit (LTP), a selective regulation introduced in 2020 for high-priced houses in Seoul to stabilize skyrocketing prices. The LTP is an administrative regulation that requires local governments to permit transactions in designated "areas," and as of 2022, the total area covered by the LTP is about 9% of Seoul's land area.Houses in the LTP zone can only be purchased by buyers who are either homeless or will eventually become single-family homeowners, and they must actually live in the houses for two years immediately after purchase. In this study, we analyzed the price and transaction volume of LTP regulated and unregulated houses, focusing on "Jamsil-dong, Samsung-dong, Daechi-dong, and Cheongdam-dong," which were designated in June 2020. In the regulated area, the LTP scheme directly reduced transaction volumes by 38.3% and prices by 4.3% compared to unregulated areas. However, the LTP scheme unexpectedly had a positive price appreciation effect on homes located closer to the regulated areas. When unregulated dwellings are categorized according to their distance from the regulated area, we estimate that dwellings closer to the regulated area increased in price by 2.3% relative to dwellings further away, and this effect is larger the closer they are to the regulated area. It appears that some of the demand in the regulated area shifts to nearby unregulated areas with higher substitutability. The different direction of the direct effect on regulated areas and the indirect effect on nearby areas suggests that selective regulation, such as LTP, may not be the right regulatory approach to achieve the goal of stabilizing the housing market.

The next chapter, Chapter 3, examines the effects of the Price Cap on New Houses. This price cap, which limits the price of new homes, is one of the controversial regulations that raises concerns that it may limit housing supply in the future. However, this study's analysis found no evidence that the price cap reduces the supply of new homes. Although the pre-sale price cap limits the profits of housing construction projects, it is operated by reflecting all the costs of land and construction for housing supply. Even if the prices of newly supplied homes are limited by the price cap during the period when the housing price is on the rise, the sales of new homes is likely to increase as well. Thereby housing development projects are profitable enough to cover all the costs. Therefore, there appears to be no empirical evidence for concerns that future housing supply will be reduced by this price cap implemented during the housing market boom. However, these results are contradictory to the results of existing studies, so caution needs to be taken when interpreting them further.

Chapter 4 investigates the price impact of the deposit control imposed on the housing repo contract in Korea, known as Jeonse. Jeonse is a unique housing repo contract in Korea where the landlord borrows a deposit from the tenant, using the house as collateral. The tenant is granted the right to occupy the house during the contract period at the expense of the deposit’s opportunity cost. In July 2020, the Korean legislature passed a law granting tenants the right to renew the Jeonse contract once, with the new deposit amount not exceeding a 5% increase from the original amount. While this new regulation has been heavily criticized as the primary driver of the surge in Jeonse deposits during the pandemic, its actual price impact has not been properly estimated.

We estimate the value of the Jeonse renewal option monthly using option pricing techniques, based on reasonable assumptions about the housing price process and information gathered from the current term structure of interest rates. Our estimation results indicate that the deposit control regulation raised Jeonse deposits nationwide by only 0.97% and by 4.80% in Seoul at the time of the introduction of the regulation, a magnitude significantly lower than previously discussed in both media and academic circles. Furthermore, we demonstrate that the renewal option does not have any intrinsic value over the past 10 years, suggesting that the option can be considered pure insurance against an unexpected increase in the equilibrium level of Jeonse deposits by the time of expiry. Based on the background of the regulation and the results of our analysis, we provide policy suggestions.

Summary

Policy Study KOR Land Investment and Its Impact on Corporate Performance

This study builds upon the 2019 research, The Macroeconomic Implications of Land Purchases: A Study on the Net Purchase of Land by Corporations, by focusing on the accumulation of land assets by manufacturing firms. Utilizing microdata from the Mining and Manufacturing Survey, it examines the ratio of land assets to tangible assets and observes a pronounced increase in land assets among these firms. The study conducts a regression analysis to compare the performance of firms that invested in land with those that did not, covering a two-year period before and after the investment. Firms that invested in land showed a significantly higher rate of value-added growth compared to their counterparts, though this gap in growth rates diminished after the investment. In particular, the year of land investment coincided with considerably new investments in buildings and machinery, as well as an increase in employment.

In light of these results, the study confirms the role of land as a productive resource. Firstly, land investment exhibits substantial complementarity with other capital goods, evidenced by increased investments in buildings and machinery during land investment periods. Secondly, similar to machinery investment, firms often expand their capital stock in response to positive productivity or demand shocks. However, land investment tends to be more strategically aligned with expanding the firm's scale, which is reflected in the simultaneous increases in employment and value-added, leading to a reduction in labor productivity during periods of land investment.

While land investment is mainly observed in small and medium-sized enterprises and has increased since the 2000s, this study does not provide specific reasons for this trend. The causes of land investment, presumably linked to Korea's unique institutional, regulatory, and economic changes, call for further detailed research.

SITEMAP

HOT ISSUE

Summary

Summary

Summary

Summary

Summary

Land and Infrastructure

Summary

Summary

Summary

Summary

Summary