Local Amenities and Geographic Disparity in Population and Industry Distribution in Korea

Abstract This chapter estimates the average wage and land price for each area through regression analyses to control for heterogeneity of workers and land across areas. Based on these quality-adjusted averages of wage and land price, we calculate each area’s business (Q B) and residential environment index (Q H) following Gabriel and Rosenthal (2004) and list the top 20 and bottom 20 locations in terms of Q B and Q H values, respectively. The findings of this chapter can be summarized as follows. First, metropolitan areas are perceived overall as relatively better locations both for firms and for workers. However, the quality of business environment and the quality of life do not necessarily match across locations. Second, while the college-educated and the young are more likely to live in the locations with better quality of business and residential environment, the old tend to live disproportionately in the locations with inferior local amenities possibly due to financial constraints. Firms newly established, belonging to headquarters, or in business service industries locate more heavily in the locations with better quality of business environment, but not necessarily in the locations with greater quality of life. However, manufacturers seem to locate their plants more in the places with lower quality of business environment. Consequently, the degree to which local amenities vary across areas seems to be remarkable in Korea. Since compensating differentials are prone to be self-reinforcing, the policy efforts by the local or central government are important for future balanced growth.