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[Research Preview] Market Access Approach to Urban Growth

October 21, 2020

 

By Yoon Sang Moon, Fellow at KDI


※ This article is part of KDI Journal of Economic Policy, August 2020

This study aims to analyze urban population and employment growth among the indicators of regional development. Population dispersion is a direct goal of balanced regional development, but the distribution of a population cannot be changed rapidly in the short term. Therefore, I investigate how cities have grown over the long run by analyzing changes in population distribution and growth. I document that the population patterns of Korean cities follow well-known empirical laws, implying that the historical evidence supports random urban growth. Although the urban growth patterns appear to be random, I find that the historical data show a systematic urban growth pattern with the concept of market access, a geographical advantage. With this, I argue that employment in cities with high market access has increased more rapidly than that in cities with low market access, as population and employment have changed for economic as well as geographical reasons.

Regional development policies in Korea have been implemented along with economic development policies. In order to advance, the industrial structure focused on light industry in the early stages of economic development, with heavy and chemical industries fostered in the southeastern region of the country. The government also provided various benefits to companies willing to move industrial infrastructure concentrated in the Seoul metropolitan area (SMA) to areas the outside of the SMA. These policies for regional development, dispersing industrial facilities and populations across the country, aim to lessen economic disparities across regions. The policy stance for resolving regional imbalances has become more prominent since the 2000s, and regional policies, such as the relocation of public organizations, have been implemented to achieve more balanced regional development.

For balanced regional development, many reports have made comparisons between the SMA and non-SMA regions. Figure 1 shows the population trends in the SMA, referring specifically to Seoul, Incheon, and Gyeonggi-Do, against nonSMAs. The graph shows that the population of SMA continues to increase, currently accounting for more than 50% of the total population of Korea as of the end of 2019. However, there is little research on the agglomeration in regional development, which drives the growth of regions and so the disparities across regions. The agglomeration effects of concentrated urban areas arise not only in Seoul but also in other large cities. In regional hub cities other than Seoul, however, the agglomeration effects appear to be reaching its limit.

Figure 2 shows the population trends of Korea’s metropolitan cities, in this case Seoul and six Gwangyeok-Si (metropolitan cities). All metropolitan cities except Incheon show decreases in terms of the population of registered residents. Busan experiences a population decline in all years except 1995 and 2010. In 1992, when data began to be collected, there were more than 3.8 million people in Busan, but in 2019, its population had declined to less than 3.5 million, showing nearly a 10% decline during that span. The population of Daegu, Korea’s third largest city in 1992, stagnated as it fell to the fourth largest city, behind Incheon, in 1999. Gwangju, the hub city of Jeollanam-Do, has been a smaller city than Daejeon since the late 1990s, showing a decline to less than 1.5 million. Daejeon had increased steadily, surpassing 1.5 million in 2010, but declined more recently, recording about 1.5 million inhabitants as of the end of 2019. Of the six metropolitan cities, Incheon alone sent positive news that it has recently exceeded 3 million. If the current trend remains, Incheon will become Korea’s second largest city in the next few decades.

The decreasing trend in the populations of local hub cities has more important implications than a population comparison between the SMA and non-SMAs. Population is the main cause of the agglomeration effect of consumption and is closely related to employment, which is the main source of the production of agglomeration. It would be very beneficial for metropolitan areas to maximize the agglomeration effect by exchanging positive interactions within regions. The populations of local metropolitan cities are, however, decreasing, and they are less likely to show their potentials in aggregation. This means that preventing the decline of local hub cities could be one of the most important starting points for balanced regional development, which is one of the government’s main tasks. As shown in the following empirical analysis, if the populations of local hub cities continue to decrease, their agglomeration effects on the surrounding area will also lessen, which will in turn hamper regional development. It is necessary to promote the development of regional hub cities so as to disseminate the agglomeration effects to the surrounding areas.

To that end, we will examine the distributions of populations across cities and how these distributions have changed over time. Population size distributions and growth are known to follow Zipf’s law and Gibrat’s law. With historical population data, I will confirm these empirical laws. In addition, the effect of the population distribution on the growth of cities will be investigated through an empirical analysis. Changes in population distributions due to population growth or migration will affect economic activities in urban areas, and this effect will depend on several geographical factors. Among these, the concept of ‘market access’ is introduced, quantified and reflected in the empirical model. Based on this model, data from Korean cities in five-year periods will be constructed as panel data and analyzed more rigorously through a fixed-effect model. 

Market access is an advantage of economic geography, first introduced in the field of international trade. However, some factors related to international trade, such as tariffs, do not apply between regions within a country. Therefore, market access is more simply applied to the movement of people and goods within a country. As discussed in more detail later, market access is associated with the size of the local market and the distances across regions. In other words, if there is a large local market nearby, the region has high market access. Assuming that the regional market is proportional to the population, it can be said that the population distribution affects market access. When there is such a populous city or large market, the surrounding areas are likely to develop. The main purpose of this study is to estimate an accurate measure of the impacts of these large markets on their surrounding areas. 

This study is organized as follows. In Chapter 2, I discuss in detail the population distribution and growth of cities in Korea. Chapter 3 introduces the concept of market access and presents a model of market access and employment growth to examine the relationship between them. Chapter 4 explains the data used with the model. Chapter 5 analyzes the effect of market access on urban growth and shows that the agglomeration effect of hub cities on the growth of neighboring regions is significant. Finally, Chapter 6 concludes the study. 

※ This paper is based on Moon, Yoon Sang, 2018, A Study on Agglomeration and Urban Growth: Market Access Approach to Urban Growth, Policy Study 2018-12, KDI (in Korean).
 
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