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' I'LULThNP i TW4 SUtJL OFT LJN uN ^ by vyu aiK Lae 'No emsber L1l65 (a.:evised) ;4at±r Suorply and lirbi±n iDevilopmeaet L)ep3rtIlenr Oera:tione;s 2oiic St.t 'iJ views ;rts˘'l.J 'eroL- ar tCos- ' t?,1h ;ituttl'a * en.i t , -li 8 *, nOt Do, iae- -Laerp-L-etad 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 pr 2sented 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. - 2 - - 8 - 50 - - All 23,293 100.0 29,864 100.0 5.1 1,216,389 100.0 2,150,971 100.0 12.1 a/ With 5 or more employees. Data Soulrce: Mining ar.d Manufacturing Census, 1973, 1978 , National Bureau of Statistics, Economic Planning Board. -5- Table 3: CHANTGES IN POPULATION BY CITY IN THE SEOUL REGION, 1975-1978 1975 1980 Annual Average Persons % Persons _ _ Growth Rate (x) Seoul 6,890 63.0 8,367 62.9 3.96 Gyeonggi 4,039 37.0 4,935 37.1 4.09 Total 10,929 100.0 13,302 100.0 4.01 Incheon 800 7.3 1,085 8.2 6.28 Suweon 224 2.0 311 2.3 6.78 Seongnam 273 2.5 376 2.8 6.61 Euijeongbu 108 1.0 133 1.0 4.25 Anyang 135 1.2 254 1.9 13.47 Bucheon 109 1.0 221 1.7 15.18 Subtotal 1,649 15.1 2,380 17.9 7.61 Rest of Gyeonggi 2,390 21.9 2,555 19.2 1.34 Data Source: Population and Housing Census, 1975, 1980, NBS. Figure 1: RING SYSTEM IN THE SEOUL REGION / ~314 "1 (__' ( L. \ 3 t 43142 ' t.)........................... . 147 3138 ,!2,,)o !1i1 .3" 111 ,A BJ G AF 1 [iXo/..12 l 314 Cs34 "/ 31*( J J -) 1&16szou# }D150 ),, #3149 11147NKxL 7J 111.1 11 )1s O 112 314 4 1121 .31 1124 w-o 1tl26 1127 gv 3101 b. A6 I . 3 3102 uw-aL.m J1. 'j .3ll7 2 3103 W.*.. ''16 3104 zIm-ama ....__... .'4 44 3X . F-3134 ' ,'1 : * I \ p- -7- much faster than the provincial average; the area outside the six cities lost its population share. Population grew fastest in two cities, Anyang and Bucheon, located at the major highway exits from Seoul. In contrast to the distribution of population, Seoul's share of manufacturing employment has declined sharply from 70.6 percent in 1973 to 48.3 percent in 1980 (Table 5). Table 4 shows that manufacturing employment in Gyeonggi grew more than four times faster than that of Seoul during 1973-1978. It is also striking to find that manufacturing employment in the area outside tne six satellite cities in the province (i.e., the rest of Gyeonggi) grew faster than the average of these cities. We may conclude that while the populacion share between Seoul and Gyeonggi remained remarkably stable, within Gyeonggi the population shifted to the six satellite cities from the rest of Gyeonggi. In contrast, manufacturing employment however showed a strong decentralization trend from Seoul to six satellite cities and further to the outer areas. 3-a. Decentralization of Manufacturing Employment For analyzing the changes in employment location patterns, the region's 45 subareas (Si's, Gu's and Gun's) are aggregated into five "rings," tnree in Seoul and two in Gyeonggi (see Figure 1). Ring 1 is the Central Business District (CBD); Ring 2 includes the districts (Gu's) in old Seoul to the north of the Han rivey:, except for the northmost Gu that belongs to Ring 3 which also includes all Gu's in South Seoul (south of the river). Ring 4 has all satellite cities (Si's) and Rinig 5 includes all outlying counties (Gun's). This ring -8- Table 4: CHANGES IN EMPLOYMEiNT AND ESTABLISHMENTS BY CITY IN THE SEOUL REGION, 1973-1978 1973 1978 Annual Average Number _ Number Growth Rate (%) Employment Seoul 409,916 70.6 539.192 52.3 5.6 Gyeonggi 170,928 29.4 492,136 47.7 23.6 Total 580,844 100.0 1,031,328 100.0 12.2 Incheon 67,825 11.7 166,576 16.2 19.7 Suweon 15,746 2.7 33,838 3.3 16.5 Seongnam 12,118 2.1 43,217 4.2 29.0 Euijeongbu 5,862 1.0 11,788 1.1 15.0 Anyang 20,616 3.6 40,184 3.9 14.3 Bucheon 7,147 1.2 45,012 4.4 44.5 Subtotal 129,314 22.2 340,615 33.0 21.4 Rest of Gyeonggi 41,614 7.2 151,521 14.7 29.5 Establishments - Seoul 5,832 70.5 7,752 59.7 5.9 Gyeonggi 2,437 29.5 5,229 40.3 16.5 Total 8,269 100.0 12,981 100.0 9.4 Incheon 610 7.4 1,458 11.2 19.0 Suweon 245 3.0 247 1.9 0.2 Seongnam 73 0.9 350 2.7 36.8 Euijeongbu 122 1.5 175 1.4 7.5 Anyang 139 1.7 299 2.3 16.6 .Bucheon 145 1.8 604 4.7 33.0 Subtotal 1,334 16.3 3,133 24.2 18.6 Rest of Gyeonggi 1,103 13.3 2,096 16.1 13.7 a/ Establisnments with 5 or more employees. Data Source: Mining and Manufacturing Census, 1973, 1978, NBS. Table 5: DISTRIBUTION OF MANUFACTURING EMPLOYMENT AND ESTABLISHIMENTS BETWEEN SEOUL AND GYEONGGI, 1973-1978 1973 1974 1975 1976 1977 1978 1979 1980 Employment a/ Seoul 70.6 67.1 63.2 60.8 57.3 52.3 50.3 48.3 Cyeonggt 29.4 32.9 36.8 39.2 42.7 47.7 49.7 51.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (Number) 580,844 612,051 718,864 851,601 945,762 1,031,328 957,368 897,924 Establishments a Seoul 70.5 71.0 66.7 64.8 64.8 59.7 59.2 56.6 Gyeonggi 29.5 29.0 33.3 35.2 35.2 40.3 40.8 43.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (Persons) 8,269 8,234 8,305 9,466 11,241 12,981 13,926 13,215 a! Establishments with 5 or more employees. Data Soutrce: Mining and Manufacturing Suirveys, 1973-1980, NBS. Table 6: DISTRIB[JTION OF MANUFACTURING EMPLOYMENT AND ESTABLISHMENTS BY CITY IN THE SEOUL REGION, 1973-1980 1973 1974 1975 1976 1977 1978 1979 1980 Employment a! Seoul 70.6 67.1 63.2 60.8 57.3 52.3 50.3 48.3 Incheon 11.7 12.4 14.1 15.6 15.3 16.2 16.5 16.8 Suweon 2.7 2.8 3.0 3.0 3.2 3.3 3.6 3.4 Seongnam 2.1 2.5 3.0 3.6 3.7 4.2 4.2 4.2 Euijeongbu 1.0 0.9 1.1 1.1 1.2 1.1 0.7 0.6 Anyang 3.6 3.8 3.4 2.9 3.5 3.9 3.9 3.4 Bucheon 1.2 1.2 3.0 3.3 3.7 4.4 4.6 4.6 Rest of Gyeonggi 7.2 9.3 9.2 9.8 12.0 14.7 16.2 18.7 1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 0 Establishments - Seoul 70.5 71.0 66.7 64.8 64.8 59.7 59.2 56.6 Incheon 7.4 8.0 9.8 11.2 10.6 11.2 9.9 9.6 Suweon 3.0 2.8 2.7 2.4 2.0 1.9 1.7 1.6 Seongnam 0.9 1.0 1.3 1.6 2.0 2.7 2.9 3.1 Eui1jeongbu 1.5 1.5 1.1 1.0 1.2 1.4 1.0 0.9 Anyang 1.7 1.8 1.9 2.0 2.0 2.3 2.3 2.4 Buc]heon 1.8 1.6 3.3 3.8 4.1 4.7 5.1 5.7 Rest of Gyeonggi 13.3 12.3 13.3 13.2 13.4 16.1 17.9 20.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 a/ Establishments with 5 or mnore employees Data Source: Mining and Manufacturing Surveys, 1973-1980, NBS. system is useful for analyzing the changing location patterns of employment in terms of the distance from the CBD. Table 7 shows sharp evidence of the manufacturing employrient decentralization in the region. During 1973-1978, three rings (i.e., Seoul) lost their shares of manufacturing employment while two rings (Rings 4 and 5) in Gyeonggi gained their shares substantially. Ring 1, the CBD, experienced a net loss with an annual growth rate of -7.6 percent. Ring 2, the central area excluding the CBD in the northern Seoul, had virtually no growth of manufacturing employment, while the growth rate of Ring 3, the newly developing southern Seoul, was close to the region's average. As the distance from CBL increases, the growth rate of manufacturing employment rose sharply in two rings in Gyeonggi province. Tfhe evidence of manufacturing employment decentralization in the Seoul region is similar to that of Bogota, Colombia, as established in a previous study (Lee, 1981), but the orders of magnitudes are about four times larger than those of Bogota. 3-b. Components of Changes in Employment Location The changing location patterns of employment have been further analyzed by the location tenure of firms, i.e., newly established (births), defunct (deaths), relocating (movers), and stationary (mature) firms. This amnounts to decomposing changes in the stock of employment by the flows of births, deaths, relocation of jobs, and stationary growth and decline of employment by subareas. Where new firms locate and the destination of movers are particularly important for understanding the employment location dynamics and predicting the future spatial structure of an urban area. The location of employment tends to - 12 - Table 7: CHAiNGES IN EIMPLOYMENT AND ESTABLISHMENT S.J BY RING IN THE SEOUL REGION, 1973-1978 1973 1978 Annual Average Number % _Number x Growth Rate (%) Employment Ring 1 45,224 7.8 30,381 3.0 -7.6 Ring 2 162,403 28.0 167,960 16.3 0.7 Ring 3 202,289 34.8 340,826 33.1 11.0 Ring 4 155,351 26.8 425,000 41.2 22.3 Ring 5 15,577 2.7 67,136 6.5 33.9 Total 580,844 100.0 1,031,328 100.0 12.2 Establishments Ring 1 1,567 19.0 1,144 8.8 -6.1 Ring 2 2,786 33.7 3,091 23.8 2.1 Ring 3 1,479 17.9 3,515 27.1 18.9 Ring 4 1,829 22.1 4,248 32.7 18.4 Ring 5 608 7.4 981 7.6 10.0 Total 8,269 100.0 12,981 100.0 904 a/ Establishments with 5 or more employees. Data Source: Mining and Manufacturing Census, 1973, 1978, NBS. Table 8: DISTRIBUTION OF MANUFACTURING EMPLOYMiENT AND ESTABLISHMENTS BY RING IN THE SEOUL REGION, 1973-1980 Employment 1973 1974 1975 1976 1977 1978 1979 1980 Ring 1 7.8 5.5 6.1 4.1 3.8 3.0 3.1 3.1 TRing 2 28.0 26.9 22.5 20.4 19.3 16.3 15.2 14.8 Ring 3 34.8 34.7 34.6 36.2 34.2 33.1 32.0 30.3 Ring 4 26.8 29.9 33.3 35.0 37.7 41.2 42.2 43.4 Ring 5 2.7 3.0 3.5 4.2 5.0 6.5 7.5 8.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Establishments a/ Ring 1 19.0 17.7 18.5 13.7 1-2.8 8.8 10.2 8.9 Ring 2 33,7 32.5 26.3 25.6 26.8 23.8 21.6 21.3 Rinig 3 17.9 20.8 21.9 25.5 25.2 27.1 27.3 26.5 Ring 4 22.1 22.8 26.6 28.4 28.8 32.7 32.8 34.4 Ring 5 7.4 6.2 6.7 6.8 6.5 7.6 8.0 8.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 E1 Establishments with 5 or more employees. Data Source: Mining and Manufacturing Surveys, 1973-1980, NBS. - 14 - influence residential locations and sets the overall development patterns of an urban area. The components of changes analysis is based on the NBS annual manufacturing survey files for the 1977-1980 period. Mature firms are those that appeared in the survey data file for all four years during 1977-1980; births are those that entered the file for the first time during the period, and deaths are those that disappeared from the file during the period. Although computations were done for all four years, only the results for 1917-1978 are reported here, because the level of employment in 1980, a cyclical trough, was lower than tnat of 1977 and 1978 (see Table 5). As shown in Table 9, the annual growth rate of employment of mature firms was less than half that of total manufacturing employment in the region (12.2 percent in Table 7). This implies the near absence of on-site expansion in inner rings of Seoul (with thie exception of the CGD where most of the firms are likely to be small). The growth of mature firms in Gyeonggi (Rings 4 and 5) was substantial however. In addition, the strong decentralization trend observed earlier can be explained by the location patterns of births and deaths: As thie distance from the CBD increases, the birth rate (i.e., the number of jobs created by new firms as percent of the base year employment) increases sharply while the death rate declined.-L/ In Table 10, the components of changes analysis was also performed by city: It is striking to find that Seoul as a whole did not have any growth of employmen. by mature firms, while such growth (i.e., / It shold be noted that those firms moved from Seoul to Gyeonggi are counted as deaths in Seoul and births in Gyeonggi. Table 9: COMPOSITION OF CHIANGES IN MANUFACTURING EMPLOYMENT a! BY RING , SEOUL REGION, 1977-1980 Mature Births -c/ Deaths 1977 1978 1978 1979 Ring Persons x Persons x Persons % Persons % I (CBD) 15,289 2.35 16,383 2.40 3,192 2.57 2,958 3.64 2 106,463 16.37 104,244 15.28 18,211 14.69 20,365 25.05 3 219,219 33.70 219,908 32.24 41,229 33.25 32,248 39.67 4 271,874 41.80 298,485 43.75 47,313 38.16 23,605 29.04 5 37,640 5.79 43,159 6.33 14,036 11.32 2,108 2.59 Total 650,485 100.00 682,179 100.00 123,981 100.00 81,284 100.00 Average Firm Size 116 121 48 53 Summary Statistics - Mature Growth(%) Birth Rate(%)e/ Death Rate(%)el Ring 1977-1978 1978 1979 Birth/Death Ratio 1 (CBD) 7.16 8.87 8.22 1.07 2 -2.08 9.96 11.14 0.89 3 0.31 12.77 9.98 1.28 4 9.79 13.27 6.62 2.00 5 14.66 29.56 4.44 6.65 Total 4.87 13.11 8.59 1.53 a! Establishmenits with 5 or more employees. b/ Establishments whlich appeared in the mantufacturing files for all years during 1977-1980. c/ Establishments whiclh entered thie file in 1978. d] Establishments which disappeared from the file in 1979. Percent wlth respect to thie 1977 total manufacturing employment. Data Source: Mining and Manufacturing Surveys. 1977-1980, NBS. Table 10: COMPOSITTION OF CIIANGES IN MANUFACTURING EMPLOYMENT a BY CITY, SEOUL REGION, 1977-1980 Mature b/ Births Deaths 1977 1978 1978 1979 Persons % Persons a Persons % Persons a Seoul 340,971 52.42 340,535 49.92 62,632 50.52 55,571 68.37 Gyeonggi 309,514 47.58 341,644 50.08 61,349 49.48 25,713 31.63 Total 650,485 100.00 682,179 100.00 123,981 100.00 81,284 100.00 Incheon 111,883 17.20 121,853 11.86 15,612 12.59 10,278 12.64 Suweon 28,692 4.41 30,450 4.46 1,678 1.35 693 0.85 Seongnam 22,559 3.47 24,668 3.62 5,156 4.16 2,678 3.29 Eulijeongbu 8,631 1.33 8,323 1.22 813 0.66 1,323 1.63 Anyang 28,207 4.34 30,021 4.40 4,627 3.73 1,021 1.26 Bucheon 26,384 4.06 31,292 4.59 5,635 4.55 2,854 3.51 Subtotal 226,356 34.80 246,607 36.15 33,521 27.03 18,847 23.18 'Rest of Gyeonggi 83,158 12.78 95,037 13.93 27,828 22.45 6,866 8.45 Summary Statistics ,I- Mature Growth(%) Birth Rate(%)e/ Death Rate(%)tl 1977-1978 1978 1979 Birth/Death Ratio Seoul 0.00 11.56 10.26 1.13 Gyeonggi 10.28 15.19 6.37 2.39 Total 4.87 13.11 8.59 1.53 Inchleon 8.91 10.83 7.13 1.52 Suwqeon 6.13 5.48 2.26 2.42 Seongnam 9.35 14.59 7.58 1.93 Euijeongbu -0.04 7.10 11.55 0.61 Anyang 6.43 13.87 3.06 4.53 Bucheon 18.60 16.01 8.11 1.97 Subtotal 8.95 11.55 6.49 1.78 Rest of Gyeonggi 14.28 24.47 6.04 4.05 N Establishments with 5 or more employees. Establishments which appeared in the nianufactuiring files for all years during 1977-1980. c/ Establishiments whit ch entered the file in 1978. d/ Establishiments which disappeared from the file in 1979. P Percetnt with respect to 1977 t"tal manufacturing. employment. rata So-irce: 14ining and Manufacturing Surveys, 1977-1980, 13BS. - 17 - on-site expantion) was substantial in Gyeonggi as mentioned above; especially, in Bucheon and the rest of Gyeonggi (the area outside the six satellite cities). It should be noted that the birth rate of jobs in Seoul is the same as the average rate of the six satellite cities while the death rate is much higher for Seoul than the average of the six cities. For the "rest of Gyeonggi" the birth rate was four times larger than the death rate. 3-c. The Incubator dypothesis The location choice of small firms tends to be different from that of large firms. The incubator hypothesis states that small, new firms tend to locate in central areas which provide easy access to essential services. The high rent the firms pay there can be easily compensated by various externalities available to them. Using the NBS manufacturing survey data, the incubator hypothesis was tested for the subareas in Seoul. A subarea qualifies as an "incubation area" if it has the following characteristics: (1) the area has a high concentration of births; (2) the area's percentage share of employment by birthts is greater than the corresponding share of base year employment; and (3) the average firm size of births is small (i.e., about 25 persons).2/ Table 11 shows eight of the 17 subareas (Gu's) of Seoul which had at least five percent of employment generated by newly established firms (births). All employment figures were for 1979 which was used as 2/ These criteria were used in the previous study on Bogota (Lee, 1981). - 18 - Table 11: 'INCUBATION AREAS' IN SEOUL Average Firm Size Employment Share(%) Ratio (Persons) Subareas (Gu's) Base'() Birtns(2) (2)/(1) base Employment Birth Jung (1112) a/ 4.14 8.92* 2.15* 19 11 Seongdong (1114) 13.93 16.24* 1.17* 57 26* Dongdaemun (1115) 6.03 4.63* !1.77 51 19* Dobong (1117) 6.79 5.71* 0.84 52 23* Gangseo (1121) 6.41 7.27* 1.13* 53 21* Guro (1122) 28.23 22.68* 0.80 124 45 Yeongdeungpo(1123) 15.81 l.27* 0.71 84 22* Gangnam (1126) 0,88 6.52* 7.41* 66 130 Subtotal 81.34 83.24 1.02 65 25 Total (Seoul) 100.00 100.00 1.00 58 25 Note: * indicates passing a criterion to be an "incubation area." a/ Numbers in parentheses are geocodes. Data Source: i4ining and Manufacturing Survey, 1979, NBS. - 19 - the base year. These eight subareas attracted 83 percent of new jobs created in Seoul that year. The third column of the table shows only four areas that satisfied the second criterion mentioned above to pass as an incubation area; among these four, Gangnam whi,ch attracted large firms (with an average size of 130 persons) does not satisfy the firm size criterion. The following three subareas passed all three criteria: Jung Gu which is Seoul's CBD; Seongdong Gu which is the southeast district adjacent to Dongdaemun Gu where the oldest and Largest eastern market is located; and Gangseo Gu which connects Seoul's industrial corridor (Guro Gu) to the rapidly growing city of Bucheon. On the average, the new firms located in the CBO had 11 employees and those in other two subareas had 21 and 26, respectively. It should be noted that Guro and Yeongdeungpo, the traditional industrial districts, attracted a large proportion of births, but their share of employment by births was less than that of the base year. We may conclude that indeed Seoul provides the incubation function for small new manufacturing firms. The "incubation areas" are the CBD, a subarea adjacent to Seoul's traditional industrial diutrict, and a subarea near Seoul's oldest and largest market. The general characteristics of these areas support those of an "incubation area" with easy access to the market3, suppliers, business services and other types of externalities. 3-d. Moving Patterns of Manufacturing Establishments As part of the research project, the National Bureau of Statistics of EPB, assisted by the World Bank research team prepared a set of questions about the relocation of establishments and included in - 20 - the 1981 Hining and Manufacturing Establishment Survey which was conducted in the fall of 1982. A total of 33,425 establishments with 5 or more employees responded to the national survey. The response rate was close to 100 percent. The relocation module included the following information: (1) the founding date of the establishment, (2) the number of relocation occurred since founded, (3) the date of relocation, (4) the previous location, and (5) reasons for relocation. These survey resulcs are summarized as follows. As shown in Table 12, of all establishments with 5 or more employees in Korea, 5,305 establishments changed their location since founded. It is significant to note that seventy-nine percent of these firms moved within the same region (i.e., the sum of the diagonal elements). A total of 1,450 firms moved within Seoul, while 835 moved out of Seoul (the sum of the first row excluding the first element). Of the latter only 7 percent (61 firms) moved beyond Gyeonggi province. These findings strongly support the hypothesis that manufacturing firms do not move long distance. Tables 13 and 14 confirm the strong decentralization trend of manufacturing firms in the Seoul region. While 774 firms moved out of Seoul to Gyeonggi, only 37 firms moved to Seoul from outer areas (Table 13). Table 14 reveals that eight subareas, Bucheon, Banweol, Incheon, Yongin, Seongnam, dwaseong, Siheung, and Anyang, together attracted 80 percent of the firms that moved out of Seoul (see Figure 1). These subareas cover the southwestern part of Ring 4 and two southern counties of Ring 5. Table 12: ORIGIN AND DESTIATION OF MANUFACIURING ESTABLISIkETS IN KOREA2/ DFSlINATION Seoul Incleon G)yeonggi Busan Daegu Gangweon Chungbug Chungnam Jeonbug Jeonnam Gyeongbug Gyeongnam Jeju ORIGIN (11) (23) (31) (21) (22) (32) (33) (34) (35) (36) (37) (38) (39) 1)TAL Seoul (11) 1450 102 672 3 2 6 1 18 5 3 16 7 2285 Incheon (23) 10 130 30 1 2 173 Gyeonggi (31) 27 24 417 5 5 1 2 2 5 488 Busan (21) 2 1 6 755 1 1 1 1 65 833 Daegu(22) 1 1 2 1 468 1 1 33 508 Ganreon (32) 72 1 73 ChmgbDg (33) 1 58 59 Chnmgnmm (34) 1 194 D 196 Jeonibug (35) 1 1 119 1 1 123 Jeonnam (36) 1 1 1 169 172 Gyyeongbug (37) 1 5 1 145 152 Gyeongnam (38) 3 1 2 1 206 213 Jeju (39) 28 28 Otber 2 2 TOTAL 1494 258 1129 763 476 78 68 223 127 175 199 287 28 5305 a! Establishnents with 5 or more employees. bI Place of origin unknovm. Data Source: Mining and Manufacturing Survey, 1981, NBS. Table 13: ORIGIN AND DESTINATION OF MANUFACTUERING ESTABLISI DESTINATION Jonglo Jung Yongsan Seongdong Dongdaemun Seongbiug Dobong Einpyeong Seodaenun M1po Ga ORIGIN (1111) (1112) (1113) (1114) (1115) (1116) (1117) (1118) (1119) (1120) (1 Jonglo (1111) 61 6 1 8 4 4 1 4 Jung (1112) 3 102 6 17 7 2 3 1 9 Yongsan (1113) 32 4 1 1 1 1 1 3 Seongdong (1114) 2 176 10 5 2 Dongdaemn (1115) 2 2 13 69 1 4 3 Seongbug (1116) 4 2 18 5 1 Dobong (1117) 1 2 2 2 94 1 Eunpyeong (1118) 18 Seodaenun (1119) 1 1 2 1 1 14 4 Mapo (1120) 1 1 1 1 1 39 Ganseo (1121) 1 1 1 1 Guro (1122) 1 1 1 1 Yeongdeongpo (1123) 3 1 3 1 1 1 1 Dongjag (1 124) Gmnag (1125) Gangnam (1126) 1 Gangdong (1127) 2 1 Other (1100) b/ 1 Seoul Subtotal (11) 69 111 47 233 100 25 115 31 18 65 Incheon (23) 1 Gyeonggi (31) 1 1 6 1 1 Other C/ 1 TOTAL 70 112 47 241 100 25 115 31 19 66 I '* a/ Establishnents with 5 or more employees. b/ Specific place of origin in Seoul unknown. c/ Relocated fran outside of the Seoul region. Data Source: Mining and Manufacturing Survey, 1981, NBS. . ESIABLISHMENTS IN THE SBOUL REGION W4ITH SELDUIrS SUPAREASF1 1'apo Gangseo Guro Yeongdeungpo Dbngjag Gwanag Gangnam Gang- Seoul Incheon Gyeonggi dong Subtotal (1120) (1121) (1122) (1123) (1124) (1125) (1126) (1127) (11) (23) (31) TOTAL 4 5 2 1 l 1 99 1 7 107 9 3 6 4 6 169 4 13 186 3 3 10 4 1 62 4 27 93 2 2 11 4 1 6 3 222 17 112 351 3 6 1 1 1 2 105 6 41 152 1 2 1 1 35 1 35 71 1 1 2 1 107 6 41 154 18 1 ll 30 4 1 1 1 1 28 15 43 39 5 12 3 1 1 66 6 51 123 57 5 2 68 6 33 107, 5 146 4 3 2 164 9 88 261 1 15 40 139 1 20C 35 137 378 3 4 2 11 2 22 1 15 38 5 1 28 1 35 2 13 50 12 1 14 2 11 27 26 29 1 22 52 65 107 246 166 17 35 30 35 1450 102 672 2224 1 5 3 10 130 30 170 1 4 9 1 1 2 27 24 417 468 4 2 7 2 10 19 66 112 264 170 20 35 30 37 1494 258 1129 2881 '-a 3 - Table 14: ORIGIN AND DESfRAION OF MANLJFACflRnM wS]ABLSmma IN THE, SEouL RErioN wITh GyBxwiGrs sURAREAs_/ DESM~IW= Seoul In- Sto- Seong- Thi- Anyang Buicbeca Owang- Song- Dbogm- Yangju Namyngju Yeoju Pyecag- Hiea- Si- Paju Go- Owang- yeoaa- 1obem~o Ga- Yang&- Icheo Yongin An- Ofmpo Gang- Gog- Ban- cleon ;eoo nan jecngbu a~eog tan dmiheon taeg aecog hueng yang ju cbeon pyeong pyeong seoag bwa jlin wLol TOMA ORIGIN (11) (23) (3111) (3112) (3113) (3114) (3115) (3116) (3117) (3118) (3131) (3132) (3133) (334) (3135) (31.36) (3137)(313)(3139)(3140) (3141) (3142) (3143) (3144)(3145) (3146)(3147) (3148)(3149) (3150) ~Seoul1(11) 1450 102 4 43 12 40 168 6 3 1 21 16 7 6 43 42 8 5 21 11 1 1 9 49 3 28 1 123 2224 Incem (23) 10 130 1 1 8 1 1 1 1 1 1 1 3 1 9 170 Suwemn (3111) 1 27 2 1 2 33 Seoognam(3112) 2 58 1 1 2 5 1 171 Euijeoagbu (3113) 10 1 1 113 Anyang (3114) 4 1 1 29 1 4 214 4 Bucheen (3115) 7 11 1 73 2 1 2 3 1 2 2 10 115 Gwaigqy6ong (3116) 1 I 1 4 .7 Songtan (3117) 6 6 Wbgduebeo (3118) 1 2 1 4 Yangju (3131) 2 2 1 6 1 1 13 Namyangju (3132) 4 1 1I 8 Yeoju (3133) 5 5 Pyeougteg (3134) 1 4 1 17 Hw-aeong(3135) 1, 2 1 1 2 1 1 1 10 Sibetng(31.36) 5 2 2 3 1 1 5 9 1 1 1 1 32 Paju (3137) 10 10 Gaf'ang (3138) 1 2 1 1 1 1 6 6 1 1 1 22 ~anegju (3139) 2 1 1 1 10 1 16 Yeonc1eai (3140) 2 2 Pocheon (3141) 4 4 Gapyeong (3142) 0 T-Yazgyo (3183) 3 3 Icheon (3144) 6 6 Yontgin (3145) 3 1 1 1 L 8 1 16 Aaseong (3146) 7 7 Gimp9o (3147) 1 2 3 Seongnan(3112) 2 58 1 1 2 5 1 1. 71 &iJeong'bu (31 13) 10 1 1 1 13 Anyang (3114) 4 1 1 29 1 4 2 1 4 47 Buxebeon (311) 7 11 1 73 2 1 2 3 1 2 2 10 115 cenguyeong (3116) 1 1 1 4 7 Songtan (3117) 6 6 DongducI,em (3118) 1 2 1 4 Yangju (3131) 2 2 1 6 1 1 13 Namyangju (3132) 4 1 1 1 1 8s Yeoju (3133) 5 Pyeongteg (3134) 1 4 1 1 7 Hwaseoog (3135) 1 2 1 1 2 1 1 1 10 Sfbeng (3136) 5 2 2 3 1 1 5 9 1 1 1 1 32 Paju (3137) 10 10 Gc~anmg(313) 1 2 1 1 1 1 6 6 1 1 1 22 Gwangju (3139) 2 1 1 1 10 1 16 Yeoachem (3140) 2 2 Pocheon (3141) 4 4 Gapyeong (3142) 0 Yangyeoog (3113) 33 Icheon (314-4) 6 6 Yongin (3145) 3 1 1 1 1 81 16 Ansecoog (3146) 7 7 Gimpo (3147) 1 23 Cegb (3148) 2 2 COgign (3149) 0 Bnieol (3150) 5 5 Other 1! 8 2 1 1 3 2 1 1 1 20 ~1~L 1494 258 34 104 26 77 262 11 10 3 35 21 13 14 66 61 29 13 36 2 18 1 6 16 68 11 34 3 01L542881 a! Establ I neots idth 5 or mrore employees. Data Source- IlZing and 1~--nufacturinsz Survev. 1981, - 24 - 3-e. Industrial Compositiion by City and Province Tables 15 and 16 show the extent of industrial specialization by city and province. In 1978, more than 60 percent of manufacturing employment was in the textile and the fabricated metal industries in Seoul and the region as a whole. There was a slight increase in this share during 1973-1978 due co the increasing share of employment in the fabricated metal industry; this shift in thle share was strong in Suweon, Anyang, and the rest of Gyeonggi. The dominance of these two industries was also true for the country as a whole (Table 16). 4. The Extent of Policy Impacts The relocation module of the 1981 manufacturing establishment survey mentioned above specified the followinig 6 categories of reasons for relocation: 1. Firms's operational needs such as additional plant space. 2. Benefits from external economies, e.g., by increasing access to related industries or markets. 3. Benefits from government incentive schemes such as tax exemptions or credit availability. 4. Relocation order from government, e.g., for violating pollution control laws. 5. Public actions such as city planning and zoning, etc. 6. Other reasons. Table D . DISTRIBUTION OF MANUFACTURING ESMPLOYMENTa/ BY CITY AND INDUSTRY TYPE IN THE SEOUL REGION, 1973 AND 1978 Food & Textile & Paper & Fabricated Other Beverage Leather Wood Publishing Chemical Nonmetal Metal Mfetal mfg Total 1973 Seoul 8.9 30.7 1.1 8.1 11.2 2.5 2.4 26.5 8.8 100.0 Incheon 5.7 21.5 20.5 0.7 4.8 5.1 9.0 23.6 9.1 100.0 Suweon 9.1 61.8 1.0 2.6 1.4 1.7 0.9 17.4 4.0 100.0 Seongnam 25.4 29.7 1.8 2.1 13.1 1.0 0.9 20.6 5.6 100.0 Euijeongbu 2.5 49.5 1.0 24.9 13.7 2.3 0.0 4.8 1.3 100.0 Anyang 1.3 39.9 3.2 11.7, 13.6 2.3 1.4 26.5 0.2 100.0 Bucheoni 4.8 16.4 0.1 3.0 8.1 7.9 10.2 41.3 8.3 100.0 Rest of Gyeonggi 11.7 34.1 2.1 9.9 8.5 12.0 1.0 15.1 5.7 100.0 Total 8.7 31.0 3.5 7.3 10.1 3.5 3.0 24.9 8.0 100.0 1.978 r,, Seoul 7.7 30.1 1.7 7.3 11.0 2.9 2.3 30.8 6.2 100.0 Incheon 3.5 19.0 14.3 1.0 7.3 5.4 7.4 35e7 6.5 100.0 Suweon 7.1 32.1 0.4 2.2 4.5 6.7 0.5 45.4 1.2 100.0 Seongnamn 8.2 29.7 3.5 3.7 10.9 2.0 0.9 33.5 7.6 100.0 Euijeongbu 2.1 64.1 2.6 11.0 6.5 3.6 0.6 6.9 2.7 100.0 Anyaiig 2.3 29.6 0.9 7.8 13.8 2.8 1.3 39.7 1.7 100.0 Bucheon 2.4 10.6 3.4 2.4 12.9 7.7 9.4 44.1 7.1 100.0 Rest of Gyeonggi 7.2 28.9 2.6 5.0 9.2 8.8 1.2 33.5 3.6 100.0 Total 6.4 27.7 4.0 5.5 10.0 4.5 3.1 33.2 5.6 100.0 N Establishmients with 5 or more employees. Data Source: Mining and Manufacturing Census, 1973, 1978, ¶BS. Table 16: DISTRIBUTION OF MANUFACTURING EMPLOYMENT-1/ BY PROVINCE AND INDUSTRY TYPE, 1973 AND 1978 Food & Textile & Paper & Fabricated Other Beverage Leather Wood Publishing Chemical Nonmetal Metal Metal mfg Total 1973 Seoul 8.9 30.7 1.1 8.1 11.2 2.5 2.4 26.5 8.8 100.0 l3usan 7.0 31.7 8.6 1.8 26.2 2.1 4.6 16.9 1.2 100.0 Gyeonggi 8.2 31.8 9.3 5.4 7.5 5.9 4.6 21.2 6.2 100.0 Cangweon 21.3 25.4 4.8 3.4 5.4 17.4 6.2 13.1 3.1 100.0 Clhungbug 27.1 34.7 2.9 2.9 12.4 9.8 0.9 7.2 2.1 100.0 Chungnam 17.2 40.0 2.0 5.1 11.6 6.6 3.0 10.3 4.3 100.0 Jeonbug 32.6 23.5 14.0 5.4 9.2 3.1 0.7 9.2 2.4 100.0 Jeonnam 32.7 25.1 5.8 3.9 10.3 6.2 0.8 13.4 1.7 100.0 Gyeongbug 12.2 50.7 2.1 2.5 3.9 2.6 5.9 17.9 2.1 100.0 Gyeongnam 9.6 41.5 1.3 2.1 10.2 5.2 1.8 26.7 1.6 100.0 Je-u 68.8 5.6 6.1 5.7 4.0 1.5 0.0 6.6 1.8 100.0 All 11.7 34.1 4.4 4.9 12.1 3.9 3.3 20.7 4.8 100.0 1978 Seoul 7.7 30.1 1.7 7.3 11.0 2.9 2.3 30.8 6.2 100.0 Busan 4.8 33.5 5.9 1.8 27.9 1.7 5.0 17.6 1.7 100.0 Gyeonggi 5.1 25.0 6.4 3.5 9.0 6.2 4.0 35.9 4.9 100.0 Gangweon 19.6 26.0 4.9 7.2 7.0 20.0 3.6 9.5 2.3 100.0 Chungbug 20.5 33.5 1.4 5.4 6.8 17.3 0.8 13.3 1.1 100.0 Chungnam 12.5 47.9 1.7 6.5 8.0 7.2 2.4 12.0 1.8 100.0 Jeonbug 20.6 34.1 14.8 5.0 9.3 3.3 0.6 9.2 3.2 100.0 Jeonnam 29.9 21.3 2.8 3.8 14.6 9.3 1.1 16.4 0.8 100.0 Gyeongbug 6.3 51.2 1.1 2.3 4.3 3.1 8.9 20.4 2.4 100.0 Gyeongniam 7.1 24.3 0.9 1.9 7.5 4.1 4.5 48.7 1.1 100.0 Jeju 66.1 10.6 3.6 4.3 6.7 3.0 0.1 3.8 1.8 100.0 All 7.9 32.1 3.8 4.1 12.1 4.4 4.1 28.1 3.6 100.0 J Establishment with 5 or more employees. Data Source: Mining and Manufacturing Census, 1973, 1978, NBS. - 27 - Trhe responses by those firms moved in the Seoul region were as follows: Reasons 1 2 3 4 5 6 Total No. of firms 2,124 39 187 158 117 258 2,881 Percent 73.7 1.4 6.5 5.5 4.1 9.0 100.0 Seventy-five percent of firms moved voluntarily for reasons (1 or 2) related with the firm's own business operations. Only 16 percent moved in response to government policy actions (reasons 3, 4, or 5). Those firms affected by government incentive schemes (reason 3) were only 6.5 percent, a small portion of the movers. The survey also revealed that most of the firms moved only recently; 93 percent moved since 1975. The fact that most of the explicit government policies to decentralize population and employment from Seoul were initiated in the latter part of tne 1970's makes it clea;: that the impacts of policy measures on firm relocations have been rather insignificant. In other words, most of the firms that moved recently did so without being influenced by explicit government policy instruments. A sample survey of 500 manufacturing establishments in the Seoul region was conducted for this research project. The survey results on the important determinants of firms' location behavior are summarized in another paper (Lee and Choe, 1985). The survey instrument also included a set of questions concerning the degree of firms' responsiveness to government incentive schemes in making relocation decisions. This information can be used for evaluating how effectively various policy instruments were implemented. - 28 - Table 17 lists the major government incentive schemes offered to the firms that were moving from Seoul to induced areas such as Banweol, a new industrial city. Of course, these incentive schemes were not available to those firms that moved from Seoul to areas where manufacturing activity is discourged. In the case of Bucheon, for example, the recent movers had to pay 500 percent penalty taxes. Of the 499 firms interviewed successfully in the survey, 141 firms were recent movers which changed their location within the Seoul region. Fifty one firms (36 percent) moved out of Seoul because they received "relocation orders" from the government; -/ ten firms (7 percent) moved in order to obtain the benefits from the incentive schemes; the remainder (57 percent) moved for their own operational needs unaffected by the government measures. It should be noted that the proportion of the sample movers affected by the government measures (43 percent) was much higher than what was revealed in the 1981 manufacturing census, where the comparable proportion was only 16 percent as indicated above. In our sample design, we over-sampled those firms which were affected by the government measures in order to capture various types of measures that were implemented. Table 17 shows the number of sample movers (as percent of the total of 141 firms) which indicated that their relocation decisions were influenced by the corresponding incentive schemes. About a half of the movers received loan guarantees for plant expansion at the new location and one fifth berefitted from capital gains tax exemption for the properties at the previous location. 3/ The legal and institutional aspects of relocation policies are described in Kwon (1985). - 29 - Table 17: RIELOCATION INCENTIVE SCtEYIES (The number of firms responded to each item as percent of the total number of 141 sample movers) 1. Loan guarantees for plant expansion 51 2. Capital gains tax exemption for the land and buildings at the previous location 20 3. Investment tax credit 11 4. Small business loans 10 5. Special depreciation allowances 9 6. dousing loans for employees 9 7. Relocation grants for moving expenses 4 8. Tax exemptions or reductions National Taxes: Corporate tax 25 Value added tax 13 Defense tax 10 Local Taxes: Property tax 32 Acquisition tax 30 Registration 30 Source: Project Sample Establishment Survey. - 30 - Other explicit instruments (items 3 to 7) were rather insignificant in affecting firms' relocation decisions. About one third of the sample movers benefited from local tax exemptions or reductions; the number of firms that reported benefits from national tax exemptions was however much smaller. These survey findings indicate that the impacts of explicit policy instruments are insignificant in affecting the firms's relocation decisions. The loan guarantee scheme for plant expansion alone stands out as a single most important measure. A survey question asked thie respondents to list in the order of importance five incentive schemes that they considered important in making their relocation decisions. As shown in Table 18, the majority of movers listed loan guarantees as thte most important incentive scheme followed by the low purchase price of land area. Capital gains tax exemption and property tax exemption were voted as the second and third most important measures, respectively. 5. Conclusions During the past decade, the Korean government implemented various spatial policies to control the growth of Seoul. For example, in 1971 the greenbelt surrounding Seoul was established. Six years later the 1977 Industrial Location Act in effect prevented new manufacturing firms from locating within Seoul and enabled the government to issue relocation orders to establishments already located there. That same year the government initiated a ten-year comprehensive plan for population and industrial redistribution from Seoul. The plan included a large number of policy instruments in five major categories: (1) the relocation of industries from Seoul; (2) inducements to relocate - 31 - Table 18: IMPORTANT GOVERNMENT POLICY MEASUR.ES AFFECTING RELOCATION DECISIONS (Percent of 141 Sample Movers) Order of Importance Policy Measures 1st 2nd 3rd 1. Loan guarantees 35.5 2.8 1.4 2. Relocation grants for moving expenses O07 1.4 1.4 3. Capital gains tax exemption 2.1 9.2 1.4 4. Exemptions of special surcharges 2.8 7.8 4.3 5. Investment tax credit and/or special depreciation allowances 0.0 3.6 6.4 6. Property tax exemption 1.4 4.3 9.2 7. Exemptions of acquisition and registration taxes 0.7 3.6 4.3 8. Low purchase price of land area 10.6 3.6 5.0 9, Priority right to purchase land d.7 4.3 3.6 10. Supply of infrastructure services 1.4 2.1 2.8 11. Government purchase of previous plant site 0.7 1.4 0.0 a/ Of 141 movers, 80 responded to 1st, 62 to 2nd, 56 to 3rd. Source: Project Sample Establishment Survey. - 32 - population to southern provinces; (3) the decentralization of education facilities; (4) the relocation of various urban functions within the Seoul region; and (5) tax and credit incentive schemes to aid relocating firms. The majority of the instruments stipulated in the plan addressed the location and relocation of manufacturing establishments with the attempt to decentralize industries.4/ In the literature, tnte desirability of decentralization policies on economic grounds has not been established, and little is known of their effects or their welfare implications. Analysis of the manufacturing survey data for 1973-1981 in this paper revealed a strong decentralization of manufacturing employment in the Seoul region and the 1981 survey and a sample establishment survey conducted for the project showed that the explicit policy instruments had negligible effects on the firms' relocation decisions. The key policy question is then how to guard against excessive spatial poLicies relative to the prevalent trends that result from operations of the markets, since excessive measures could be extremely costly and result in serious welfare losses. In developing countries the absence of empirical information on decentralization and policy effects does not yet permit improving tae efficiencies of spatial policies. The trends of employment location and the effectiveness of policy instruments documented in this paper become an addition to a few such studies available in the literature including the previous study on Bogota (Lee, 1981). The "incubator hypothesis" tested in this paper for Seoul is a powerful example that demonstrates the need for policy makers to 4/ Lee (1985a); also see Choe and Song (1984) and Kwon (1985). - 33 - understand the individual firms' location behavior in order to have sound spatial policies. TZhe Industrial Location Act of 1917 that prevents new manufacturing activity within the Seoul's city limit would "kill" the incubator function provided by Seoul's agglomeration economies. Tnen the important policy question is whether the incubation function could be replicated in areas outside Seoul. As shown by the origin and destinacion matrices of recent movers in the paper, firms do not move long distance and small firms tend to stay within the central areas. Only 7 percent of moving firms relocated from Seoul to other provinces. Arn attempt to create the incubator function outside Seoul and to induce small and medium size firms there would be difficult and prohibitively costly. - 34 - References Chun, D.H. and K.S. Lee (1985), "Changing Location Patterns of Population and Employment in the Seoul Region," Discussion Paper No. UDD-65, Water Supply and Urban Development Department, The World Baak. Choe, S.C. and B.N. Song (1984), "An Evaluation of Industrial Location Policies for Urban Deconcentration in Seoul Region," Journal of Environmental Studies, Vol. 14; World Bank Reprint Series No. 327. (Also, Discussion Paper No. UDD-7, Water Supply and Urban Development Department, The World Bank.) Henderson, J.V. (1980), "A Framework for international Comparisons of System of Cities," Urban and Regional Report No. 80-3, The World Bank. doover, E.M. and R. Vernon (1959), Anatomy of a Hetropolis, Harvard University Press. Kwon, W.Y. (1985), "Issues and Problems in Planning and Implementing industrial Location Policies in Korea: A Planner's View," Discussion Paper No. UDD-84, Water Supply and Urban Development Department, The World Bank. Lee, K.S. (1981), "Intra-urban Location of Manufacturing Employment in Colombia," Journal of Urban Economics, March. (World Bank Reprint Series No. 195.) Lee, K.S. (1982a), "Determinants of Intra-urban Location of Manufacturing Employment: An Analysis of Survey Results for Bogota, Colombia," Urban and Regional Report No. 81-3, The World Bank. Lee, K.S. (1982b), "A Model of Intra-urban Employment Location: An Application to Bogota, Colombia," Journal of Urban Economics, November. (World Bank Reprint Series No. 249.) Lee, K.S. (1985a), "Decentralization Trends of Employment Location and Spatial Policies in LDC Cities," Urban Studies, Vol. 22. (Also Discussion Paper No. UDD-20, Water Supply and Urban Development Department, The World Bank.) Lee, K.S. (1985b), "A model of Employment Location: Estimation for the Seoul Region," Discussion Paper No. UDD-90, Water Supply and Urban Development Department, The World Bank. Lee, K.S. and S.C. Choe (1985)., "Determinants of Locational Choice of Manufacturing Firms in the Seoul Kegion: An Analysis of Survey Results," Discussion Paper No. UDD-85, Water Supply and Urban Development Depar tment, The World Bank. - 35 - Leone, R. (1971), Location of Manufacturing Activity in the New York Metropolitan Area, unpublished Ph.D. dissertation, Yale University. Meyer, J.R. (1981), "Report on Proposed Korean Spatial Study," Urban and Regional Report Nio. 81-1, The World Bank. Murray, M.P. (1982), "Here, There, Where? A Strategy for Evaluating Industrial Relocation Policies in Korea," Discussion Paper No. UDD-6, Water Supply and Urban Development Department, The World Bank. Murray, M.P. (1985), "Simulating the Efficiencies of Alternative Industry Location Subsidies in Korea," Discussion Paper No. UDD-87, Water Supply and Urban Development Department, The World Bank. Muth, R. (1969), Cities and dousing, University of Chicago Press. Renaud, B. (1981), National Urbanization Policy in Developing Countries, Oxford University Press. Schmenner, A. (1982), Making Business Location Decisions, Prentice-dall. Solow, R. (1972), "On Equilibrium Models of Urban Location," in Mr. Parkin, ed., Essays in Modern Economics, Longman. Struyk, R. and F. James (1975), Intrametropolitan Industrial Location, Lexington Books. Tolley, G. et al. (1979), Urban Growth Policy in a Market Economy, Academic Press. World bank (1979), World Development Report 1979.