public disclosure authorized sang-chuel choe and byung...

World Bank Reprint Series: Number 327

Sang-Chuel Choe and Byung-Nak Song

AnEvauaton efIndustrial Location Policesfor Urban Deconcentrationin Seoul Rtegion

Reprinted with permission from Journal of Environmental Studies, volt 14 (1984), pp. 73-116.

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Trade: Empirical and Methodological Aspects

An Evaluation of Industrial LocationPolicies for Urban Deconcentration in

Seoul RegionSang-Chuel Choe**Byung-Nak Song***

<Contents>

I. Background and Issues IV. Evaluation of Industrial Location PoliciegII. Historical Review of Industrial Location A. Identification of Major Policy Instruments

Policies B. Effectiveness of Policy InstrumentsIII. Changes in Spatial Distribution of Man- V. Review of Current Policy Situation

ufacturing Employment and Population A. Current Policy SituationA. Hierarchical. Regional Systems B. Research NeedsB. Changes in Spatial Distribution References

I. Background and Issues

Throughout the developing world, the spatial distribution of population and industry is

increasingly viewed as a major developmental issue. Korea is not an exception. Vulnerable

national security, the high primacy rate of Seoul, explosive regional rivalry and increasing

regional disparities have made the 'policy makers as well as the general public believe that

it is necessary to take some action toward national distribution of population and industry.

Although vigor has fluctuated from time to time, spatial redistribution policy of population

has been the object of national concern since early 1960s. The major policies, legislative

actions, plans and other measures pertaining to the government's decentralization effort

are chronologically summarized as follows:

* This paper is part of the Korean Spatial Research Project conducted by the World Bank(RPO672-91). The authors acknowledge valuable comments received at the seminars sponsored bySeoul National University and the World Bank and also an immense debt of gratitute to KyuSik Lee, Douglas Keare and Edwin S. Mills.

** Ph.D. and Professor, Department of Environmental Planning, Graduate School of Environ-mental Studies, Seoul National University, Seoul, Korea.

'" Ph.D. and Associate Professor, Department of Economics, School of Social Sciences, SeoulNational University, Seoul, Korea.

1964 ~Cabinet's decision to control extraordinary growth of large cities

relocation. of secondary government agencies to local cities

* discouragement of new industrial development in Seoul

. development of industrial estates

* encouragement of educational and cultural facilities in local areas

1967 (a) Enactment of Local Tndustrial Development Law

* designation of local industrial estates

* introduction of positive indirect incentives to promote local industrial development

(b) Establishment of the Presidential Advisory Committee on the Policy Issue in

the Capital Region.

* Prime Minister as chairman with the other ten committee members from related

central ministries

1970 (a) cabinet reconfirmed the 1963's decisions to control population concentration of

the capital region.

. removing the population-attraction factors by encouraging educational and cultural

facilities in local areas(') and balanced development for urban and rural sectors

through the First Comprehensive National Land Development Plan(2)

X designation of green belts around major urban areas(3)

* delegation of authority held by the central government to field offices and local

government

v relocation of head office of government corporations to local cities

(b) Introduction of differential school fee scheme against Seoul and restriction of

transfer of middle and high school students into Seoul from other areas except

for family movement

(c) Initiation of Saemaul Undong (New Village Movement) to revitalize rural

villages and agricultural sector

1972 (a) Land use control by Seoul City

* reduction of areas zoned for residential and industrial uses

* removing illegal and squatter settlements

* relocation of governmental agencies outside Seoul (The Agricultural Development

Corporation and The Industrial Site and Water Resource Development Corpora-

tion)

(1) The Central Officials Training Institute was relocated in Taejon.(2) Being the 10-year national plan for urban and regional development (1972-1981), it did not

go beyond a policy statement of developmental goals for the decentralization of populationand industries for the capital region.

(3) About 24.7% of the capital region was designated as green belt in 1972 and has been

strictly enforced since then.

An Evaluation of Industrial Location Policies for Urban Deconcentration in Seoul Region 75

Map 1. Provinces and Cities in Korea

* angneong\ g f < t GAN W'ON S'"

Y:/ GYOG(I1/ GY/ / * Taebaek

Provin.ial \boundaries hCllt af) CHUBNUG; *Y- u

Ga Special at y / -) r Yowlgju

Cities Cl IUN1;NAM Cht og*Aover I million KYE(NGBI'(;

* Cities Taejeon Kimrheun

Capital lt,I r i . \ - h* nRegion Ktia * JeOnju 1 Pnobagng

I'aegu *JEONB IG f Kyenngjn

Jeongup j . Namw(on KYEON(,NAMN§ ) Kimhac

JEONNANI KI a, 1(1

Kwa,,gtu Suncint w. S 13

Mokpo Gun'.M (uemseongb 14 " ,rJ

7 Sengna. i ejuD1 ongducheon 8 Suwont

2; lejeongbu 'J Songtan JEJU3 Inchon 1X1 Masan , Seoguipo4 Bucheon 11 Changwon5 Gwangmyeong 12 Jtnhae6 Anyang 13 Samcbeonpo

14 Yeosu

1973 (a) Introduction of tax measures to control population concentration

* introduction of new residence tax(4) against large cities

* exemption of local taxes such as property and acquisition taxes for the industries

located outside Seoul

* differential tax imposition1 5 ) to new industrial establishments located in large

cities, especially in Seoul

(b) Introduction of regional quotas for college enrolement and faculty exchange

program between Seoul and local universities

(c) Restriction of establishment and expansion of new academic departments in

colleges in Seoul

(4) Residents and corporates are due to pay a fixed amount of tax. Those who reside in a largecity pay more.

(5) See, Chapter IV-A.

Map 2. Capital Region and Industrial Zoning

7. ........ .

(.I . ... ...

'-(

1977 (a) Announcement of the National Plan for Population Redistribution from Seoul

Metropolitan Region

(b) Enactment of Industrial. Distribution Law

* introduction of three classes of industrial location zoning scheme into dispersal

zone, status-quo zone and inducement zone 6)

* introduction of industrial development certificate scheme(")

(c) Enactment of Special Law for Temporary Administrative Capital Construction

1978 (a) Designated dispersal zone covering the Special City of Seoul, Eijongbu City

and parts of two counties (Goyang and Yangju) to the north of Han River and

status-quo zone covering cities of Inchon, Suw-n, Seongnam, Anyang, Bucheon

and parts of six counties (Hwasecng, Siehung, Yongin, Yangpyong, Gwangju and

Kimpo) to the south of Han River (Refer to Map 1 and 2)

(6) See, Chapter II.(7) New .location and on-site expansion of industrial plant is under the permission of the Capital

Region Policy Deliberation Committee of which members are represented by the vice-ministerof central ministries and the Mayor of Seoul City.


1979 (a) Relocation order issued to 1813 firms (as of 1980, 3058 firms) in Seoul by theIndustrial Distribution Law

1980 (a) Political and economic disorder after the assassination of President Parkloosened enforcement of decentralization measures

* non-central business district activity dispersal program of Seoul56) nearly cancelled* regional quota scheme for college enrolement loosened* delayed enforcement of firm relocation under relocation order

1981 to date. Based on recent government announcements, decentralization measures willbe once again undertaken. These policies are expected to be quite rigorous.

Whenever the decentralization issue goes on the boards, industrial relocation measures

have come along with it as the foregoing summary indicates. It is widely accepted amongthe government policy makers and even within academic circles that balanced regionaldevelopment will not be achieved without redistribution of industrial activities, and thatthe spatial relocation of manufacturing industries is one of the most effective means forpopulation redistribution. It may be true that the redistribution of population may notbe possible without its concommitant redistribution of industries. The government's

determination to decentralize population and industries mainly from Seoul and itsmetropolitan region seems in many cases to go beyond rational calculation and begin withemotional and enigmatic motivation. The government once express its intention to pursuea decentralization program at any cost to national economic efficiency. In this case, it maynot be possible to persuade the government to make its policies on the basis of efficiencybut instead to make aware of what the cost would be for such a policy alternative andhow to minimize welfare losses resulting from it.

Unfortunately, very few in-depth studies have been undertaken in Korea. One of thestudies done by the Office of Minister, without Portfolio (1980) cautiously concluded thatthe National Plan for Population Redistribution from Seoul did not meet the goals theplan originally was expected to achieve. By the plan, the population of Seoul in 1981is to be 8 millions. But actual population is approaching to 8.6 millions. Variousgovernment measures directed specifically at firm relocation turned out to be poorly

implemented. In the case of Banwol new indtustrial city, about 500 firms and 50, 000

(8) To encourage the planned growth of sub-centers and to counter-check the on-going concen-tration of activities into the central business district, non-CBD activities were categoricallysorted out for dispersal to sub-centers.

78 __ a a_JR t M-geF (1984)

inhabitants are planned to accomodate in 1981. But only 100 firms are actually relocated

or newly located in the city. while population is also staggering behind planned target by

a half. The negative controls over ind .,,-rial mobility have been a constant feature of

industrial location policies. Many of the designated areas have suffered from poorer social

capital for example education, housing and welfare facilities. The severity of some these

drawbacks concerning industrial dispersal program is contribution to a cumulative process

of hardships for relocated firms.

II. Historical Review of Industrial Location Policies

In the locational analysis of c.onomic activity, information on the past spatial patterns

is one of the most important inputs. From the outset of modernization a biased locational

structure of manufacturing industries was imposed on the preindustrial economy the

Japanese colonial rule. Most industrial centers were located on the northwestern and south-

eastern coastal areas near major ports to efficiently connect them with Japan. The few

inland industrial locations were confined to textiles and some basic consumer goods industries.

The main purpose behind the constellation of locational centers was to develop an arsenal

for Japan's ambitious territorial expansion into mainland China, although heavy industries

were limited mainly to the extraction of raw materials and semi-finished goods and war

supplies for final processing and consumption in Japan.

These initial handicaps were coupled by the separation of the agricultural south from

the relatively well-developed manufacturing regions of the north. Due to the abrupt

territorial division in 1945 and the consequent destruction during the Korea War, the

locational equilibrium of the nation's economy dissolved into disorder. The post-war

locational policy of both North and South Korea has been geared toward the adjustment

of their respective structural imbalances. As Chung (1964) pointed out, the locational

disruption which was raised by the territorial division jeopardized more severely the

southern part of the peninsula, since the North was the chief supplier of electricity,

providing 92 percent of electricity in 1945. Thus the locational policy of South Korean

manufacturing activities consisted largely of small plants' products; paper, hardware,

pottery and glass, vegetable oil and fats, soap and carbide which were quite evenly

distributed on the nation. Although a desparate effort was made to achieve locational

adjustment from the disorder of territorial division and war economy, it took more than


ten years to recover the level of pre-Korean War production in manufacturing activities

in the South.

Throughout 1950's no specific locational policy would be highlighted except the

reconstruction of disarranged industrial establishments and the new location of two fertilizer

plants in Chungju and Naju and of two cement plants in Munkyong and Danyang(See

Map 1). The locational decision of those plants which were built by the government or

strong government endorsement was made to minimize distribution costs or, in other words,

with the considerationt of consumer proximity. The location of cement plants is highly

material-oriented and therefore, concentrated in one region near to their raw materials.

The locational decision of government enterprises and monopolistic enterprises has shown

a different pattern from those of small-and-medium sized private establishments. While

competitive private enterprises can hardly dominate national market, government and

monopolistic enterprises like cement and fertilizer industries tend to divide the nation into

a few large markets in order to minimize distribution cost.

Contrary to the no-policy attitude of the government in terms of. industrial location in

the 1950's, the government paid keen attention to the development of the industrial estate

symbolizing the start of planned economic development and accomodating key industrial

plants which they planned to build during the First Five-Year Economic Plan(1962r

1966). The groundbreaking of the Ulsan industrial estate in 962 was heralded as the

landmark in industrial development. During the first half of 1960's no significant change in

locational policy was seen except the Ulsan industrial complex and the enactment of

Export Industrial Estate Development Promotion Law in 1964 which was initiated by

private export industrialist and enabled them to designate a special estate for export

industries. The first Export Industrial Estate as import duty free zone was created in

Guro-dong District in Seoul. The government sold she government-owned land on

preferential terms and provided the basic infrastructure necessities like industrial water

and roads leading to the estate. Policy instruments adopted by the Export Industrial

Estate Development Promotion Law were not very impressive in terms of financial incentives

but were largely confined to infrastructural provision. For example, they were the

preferential sale of publicly-owned land and premises, the supply of basic infrastructure

facilities and strengthened administrative endorsement.

In 1968 the Local Industrial Development Law(LIDL) was enacted to promote industrial

estates which were expected to reduce economic disparity between Seoul and local cities

80 m ; m m ±1(1984)

and to insure an increase in employment opportunity in depressed areas. The City of

Jeonju initiated the first local industrial estate on a relatively large scale. of 150 hectres

and followed by the City of Taegu. Two local industrial estates were judged to be workable

and beneficial to local communities involved. Encouraged by the Law and nurtured by the

competitive eagerness of local industrial boosterism, more than dozen of local industries

estates were sporadically developed in the late 1960's and in the early 1970's as shown in

Table I and Map 8. Some of these industrial estates were not successful inducing

industrialists and caused financial difficulties for their local governments at the expense of

Table 1.Unit: 1, 000 pyonga)

City Construction j Total Salable Sold Waiting__ y_i_Period Area Land Out To Be Sold

Jeonju 1967-69 498 401 401 .Taegu 1967-69 360 300 300 -

Cheongju 1969'71 834 743 158 585(1979''80)

Kwangju (19798-'8 j 833 700 367 333

Taejeon 1969-77 365 311 311 -Chuncheon 1969 149 120 120 -Gumi 196979 793, 185 2, 434 2,434 -

Mokpo 1970-'71 139 112 112 -

Iri 1970'72 925 774 253 521In ~~~(1979-'81)72551Wonju 197071 120 91 91Suncheon 1977-79 162 120 20 106Gunsan 1978-79 1, 550 1 773 333 440Gunja 1978'80 810 542 242 300Yangsan 1978-80 486 360 287 73Nongong 1979r80 1,200 960 - 960Hyangnam 1980-81 200 162 - 162Munmak , 300 250 - 250Chungju 450 360 - 360Jaecheon ii 120 100 - 100Cheonwon ii 450 315 - 315Weagwan 1980-82 1 760 | 592 - 592Kimcheon 1980-81 400 240 - 240Masan 1980-82 400 290 - 290Jucheon 1980r82 900 535 535Jhiiseo 1980-82 1, 100 580 - 580

Total T. 16,696 J 12,171 | 5,429 7,042

a) 1 pyong ,3.3 square meter%,


local basic needs. Although these industrial estates were planned to accomodate about1, 200 industrial establishments, only 650 applied to move into the estates in 1971. Worseyet, the number of industfial establishments in actual operation were to be less thanapproximately 20 percent.

With grumbling experience of ubiquitous development of local industrial estates in thelate 1960's, the central government felt it necessary to intervene in the development ofindustrial estates and also to provide a site for heavy industries which was national priority

,during the 3rd Five-Year Economic Plan (197241976). TIhe government established theIndustrial Site and Water Resource Development Corporation (ISWRDC) under the Ministry,of Construction which was fully invested in by the governmenrt, The ISWRDC wasin charge of the development of large scale industrial estates mainly for heavyindustries. Areas under the control of the Corporation number sivteen and cover morethan about 169 million pyongs as shown in Table 2.

Table 2Unit: 1, 000 pyongs

Date of Total Industrial Residential. OthDesignation Area Use Use

Heavy Petro- 375,728 194,186 63, 532 118,010Chemical Estates IChangwon 1974 1 14,710 6, 450 4, 700 3, 550Yeocheon 1974 13, 340 5, 510 3,150 4, 680Onsan 1974 7, 340 4, 860 690 1,790Okpo 1974 1,380 970 300 110Anjeong 1974 1,568 1,054 1 514 -Jukdo 1977 1, 500 890 220 390Gumi 1977 4,300 1,822 958 1,520Pohang 1975 12, 700 6, 070 - 6, 630Ulsan 1975 13,900 11, 460 - 2, 440Bukpyong 1975 5, 000 3, 600 - 1, 400Asan 1979 300, 000 151, 500 53, 000 95, 500

Special 29, 650 3, 749 5,910 19, 991EstateWolseong 1976 1,300 118 90 1, 092Samcheonpo 1976 600 85 - 515Jeesaepo 1974 700 700 - -Banwol 1977 17, 500 2, 470 5, 250 9, 780Taeduck 1977 8, 400 - 570 7, 830Kojeong j 1979 1,150 376 - 774

Total 405,378 | 195, 935 *69, 442 138, 001

1 pyong .3.3 square meters

82 M ±Um-t (1984)

In the meantime, the pressure forcing the government to take action for industrial

dispersal increased and was finally documented in the form of a comprehensive plan called

the National Plan for Population Redistribution for the Capital Region in 1977. Full

authority Ao push ahead with the Plan was given to the Minister without PortfoMfo with

strong p. dential endorsement. The central ministrics which has far kept a noncommittal

attitude about decentralization programs were under the tight rein of the Minister without

Portfolio. Following the basic guidelines for industrial dispersal policy as specified by the

Plan, the Ministry of Commerce and Industry enacted the Industrial Distribution Law,

largely patterned after the Industrial Relocation Law of Japan and the Industrial

Development Act of the United Kingdom. The concept of national industrial zoning was

first introduced with three categories, i. e., dispersal zone, status-quo zone and inducement

zone. Policy instruments were diversified and strengthened both in terms of positive and

negative incentives in comparision with those of the Local Industrial Development Law.

It will be further substantiated in Chapter IV in this paper.

III. Changes in Spatial Distribution of Manufacturing Employment

and Population

A. Hierarchical Regional Systems

For analysis of the changing patterns of spatial distribution of employment and population

in the Seoul region, this study may use the following hierarchical region subsystems, as

shown in Map 3.

(1) Central business district of Seoul

(2) Ring of Seoul

(3) Seoul metropolitan area

(4) Other Gyeonggi areas

(5) Capital region

Seoul became a special city in 1962 by the Decree of Seoul Special City as a geographical

area comprising nine administrative districts or gus (wards) and 307 dongs (sub-districts),

the smallest administrative units, with an area of 613. 04 square kilometers. The size of

the area increased to 627. 66 square kilometers in 1973 with the annexation by the Seoul

metropolitan government of 14. 62 square kilometers of rather rapidly growing areas in

neighboring counties. Since then the geographical area of Seoul has remained fixed until


now, probably causing the severe shortage of land and thereby the rapid rise in land

prices in Seoul. However, the number of wards has been increased with the rapid rise in

population from 9 in 1973 to 17 in 1981.

Each of the above regions will be described briefly. The central business district of the

city of Seoul is defined as the central portion of Seoul comprising two wards with an

area of 34. 17 square kilometers. The ring of the city of Seoul is, then, the rest of the

city. The concept of CBD in this study is the same as that used in the study by Mills

and Song (1979).

The Seoul metropolitan area (SMA) in this study is the same as that specified by the

Population Redistribution Plan for the Capital Region (1977'-1986) prepared by the Office

of the Minister without Portfolio. It includes the city of Seoul as its center and neighboring

Map 3. Seoul, Seoul Metropolitan Area and Capital Region

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84 ow #l 94 &e 41tgRe(1984)

counties (Gun) and cities directly adjacent to the administrative boundary of the city of

Seoul. In addition, it includes also, as shown in Map 3, in its periphery the cities of

Incheon and Suwon and the counties of Yongin and Hwasung, whose boundaries are not

directly boardered by the jurisdiction of the city of the Seoul metropolitan area is 14

including Seoul (7 cities and 7 counties). The administrative units included in the SMA

and bordered by the city of Seoul are the cities of Bucheon, Euijeongbu, Seongnam,

Anyang and the counties of Yangju, Goyang, Gwangju, Kimpo, and Siheung. The total

area of SMA amounts to 4, 394. 9 square kilometers in 1980, about 40 percent of the total

area of the Capital Region.

The Other Gyeonggi Area (OGA) comprises 11 counties in the Gyeonggi province,

namely, Yeoju, Pyeongtak, Paju, Yeonchon, Pocheon, Gapyong, Yangpyong, Ichon,

Anseong, Gangwha, and Ongjin. All these counties are not very far from Seoul. However,

major economic activities of these counties appear to be a large extent rural-agricultural

and may be considered functionally not linked to Seoul as are those of cities and counties

included in SMA. The area of OGA amounted to 6, 674.6 square kilometers in 1980.

The Capital Region in our study is the same as the concept used by the First

Comprehensive National Land Development Plan (1972-1981) prepared by the Ministry of

Construction, except that the Capital Region in our study excludes the county of Cheolwon

in Gangwon province. As Cheolwon is A small county, with population of 64 thousand in

1980, exclusion of it from our study will probably not influence the results of our analysis.

The Capital Region in our study, thus, comprises the capital city of Seoul as its center

and the rest of the Gyeonggi province as its periphery. The area of the Capital Region

in our study is the same as that of Gyeonggi province of 11, 069.5 square kilometers plus

the area of Seoul of 627. 06 square kilometers.

The Capital Region includes 7 sis (cities), 19 guns (counties) 32 eups (townships), 162

myeons (rural administrative unit below the county level), and 7,268 villages as of 1981.

The region is very well connected by railways and highways with certain areas, especially

south of Han River, serviced extensively by expressways as well. The geographical division

of various regions and major transport routes of the Seoul Region are shown in Map 3.

In 1980 the Capital region accounted for about 45 percent of the nations manufacturing

employment, and about 36 percent of the nation's population, The proportion of urban

population including citiej (sis) and townships (eups) to total population of Capital Region

was 83. 8 percent in 1980, much higher than the national average of 69.4 percent. The


second highest was Kyeongbuk province of 61.9 percent.

B. Changes in Spatial Distribution

For analysi§ of changes in spatial distribution of manufacturing employment and

population, we have retabulated employment and population data according to the

hierarchical regional system described above. The changing pattern of spatial distribution

employment and population as shown in Tables 3 and 4 appear to conform to the pattern

that could be generally observable from other large metropolitan regions. That is, outlying

portions of our regions grow faster than central portions whether defined as, the Seoul

metropolitan area, of the Capital region itself. This pattern is even more remarkable in

the case of manufacturing employment than in the case of population. This pattern of

suburbanization is similar to the patterns of other large metropolitan areas in the U.S.

For instance, in the case of the city of Seoul, the share of manufacturing employment

by CBD decreased from 17. 5 percent to 5.7% between 1960'1980 compared to the RING's

increased share ftom 82. 5 percent to 94. 3 percent during the same period. In ;he case of

the Seoul metropolitan area, the City of Seoul's share of employment decreased from 80

Table 3. Manufacturing Employment in Central City, Periphery, Metropolitan Area and theSeoul Region, 1960-1980.

1 9 6 0 1 9 66 1 970 1 97 8

?001

l. City of Seoul 64.1 100 180.2 100 291.7 100 536.4 100CBD 11.2 . 17.5 31.3 17.41 49.1 17.2 30.4 5.7RING l 52.9 82.5 148.9 82.6 242.6 82.8 506. 0 94.3

I. Seoul Metropolitan Area1 80.3 100 228.0 100 388.3 100 983.3 100Seoul 64.1 79.8 180.2 79.0 291.7 75.1, 536.4 54.5Periphery 16.2 20 21 47.8 21.0 96.6 24 91 447.4 45.5

N. Other Gyeonggi Areas 28.4 51.6 7.9 22.0

M. Capital Region( I + I) 92.5 100. 0 231.8 100 396.2 100 1, 005. 8 100Seoul 64.1 69. 3 180.2 77.7 291.7 73 71 536.4 53.3Gyeonggi Province 28.4 ' 30 7! 51.6 22.3 104.5 .26.3 469.4 46.7

V. Korea 275.2 566.7 861.0 , 2,223.4(482. 2) Ca), (857. 0) (1, 284.0) (3, 016. 0)

Note: (a)Employment data covering all size of firms. Manufacturing census covers onlyfirms of mxre than 5 employees.

Sources: National Bureau of Statistics. Mining anrr AManufacturing Census, 1960, 1966, 1970, 1980.Gyeonggi Do. Statistical Yearbook of Gyeonggi, Various Years.Seoul Metropolitan Government, Seoul Statistical Yearbook, Various Years.

Table 4. Shares of Population for Central City Periphery, Metropolitan Area, and the CapitalRegion, 1960-1980

1960 1966 1970 1975 1 980

/ A /

I. City of Seoul 2. 600 100 3,805: 100 5,527 100 6, 889. 100 8,367 100CBD 400 15.4 386 10.2' 346 6.3 619 8.9 535 C4RING 2, 200 84. 61 3, 419 89. 81 5, 181 93 71 6, 270 91.1 7, 832 93. 6

11. Seoul Metro. Area 3, 929 100 5, 611 100 7, 625 100 I 9, 545 100 11,882 100Seoul 2, 600. 66. 2 3, 8051 67.8! 5, 527 72.5 6, 889: 72.2 8, 367. 70.4Periphery 1, 329: 33. 8 1, 806. 32.21 2, 098. 27. 5 2, 656 27.8 3, 515 29. 6

m1. Other Gyeonggi areas 1, 420 1, 296: 1, 198: 1 383 1, 420.

IV. Capital Region ( I + II) 5, 349 100 6, 907: 100 8, 823: 100 10, 928 100 13, 302 100Seoul 2, 600 49 3, 80.5 55 5,527: 62. 6 6, 889 63.0 8,367f 62.9Gyeonggi Province 2,749 51 3,102' 45 3, 296: 37. 3 4,039 37. 0 4,935 37.1

V . Korea 125, 117 129, 247 '31, 566 34, 709 37, 449.

Sources: National Bureau of Statistics, Population and Housing Census, 1960, 1966, 1970, 1975, 1980.Gyeonggi Do, Statistical Yearbook of Gyeonggi, Vaiious Years.Seoul Metropolitan Government, Seoul Statistical Yearbook, Various Years.

Table 5. Population Growth Rates in the Capital Region, 1961"1980

l1961r65 1966'70 1971r75 1976-80 1961'70 1971'80

1. Seoul 7.0 9.3 | 4.4 3.9 8.2 [ 4.1R.1 Gyeonggi 1.6 | 2.4 1 3.7 4.0 2.0 3.9m[. Capital region ( I + 11) 4.3 6.4 4.1 3.9 5.4 4.0

Korea 2.8 2.0 1.8 1.6 2.5 1.7

Sources: Economic Planning Board, Major Statistics of Korean Economy, Seoul, 1981.Gyeonggi-do, Statistical Yearbook of Gyeong-gi, Seoul, 1981.

percent to 54. 5 percent between 1960-1980, whereas the same figure for the periphery

increased from 20 percent to 45. 5 percent. In the case of the Capital region, the City of

Seoul's share decreased from 69. 3 percent to 53. 3 percent, while periphery's share

increased from 30.7 percent to 46.7 percent during the same period.

From our study of the changing pattern of spatial distribution of manufacturing

employment in the Capital region as shown in Table 3, we can find that;

(1) Although we can observe the continuous and persistent change in spatial distribution

of manufacturing employment in the Capital region, the substantial change in spatial

distribution in the Capital region began after 1970, probably toward the end of the


Second Five-Year Plan (1967-1971) period.

(2) CBD of the city of Seoul declined in relative terms until 1970, but thereafter

declined absolutely as well. The loss of manufacturing employment by CBD since

1970 was very remarkable.

(3) The growth of the central city of the Seoul metropolitan area still continues. But

its growth rate is much lower than that of the periphery.

(4) The rapid growth of the periphery of the SMA implies that a large proportion of

manufacturing employment is located in cities and counties adjacent to the city of

Seoul.

(5) Employment in Other Gyeonggi Areas appears to be rather small, but grows fast.From our study of the changing pattern of spatial distribution of population in Capital

Region as shown in Table 4 and 5, we may find that;

(1) Although the pattern is similar to that of employment situation we can find that

the change is smaller in the case of population than in the case of manufacturingemployment.

(2) The relative as well as the absolute decline of CBD of Seoul appears to have begunaround 1975.

(3) The population increase in the periphery of the Seoul metropolitan area has been

substantial since 1970. However, the increase in other Gyeonggi Areas has been

rather stagnant throughout the period. The rapid increase in the' 'population of

Gyeonggi province seems to have been the result of a large population increase in

the periphery of the Seoul metropolitan area.

(4) The rapid increase in the population of the periphery of the Seoul metropolitan

area may have been due to the rapid growth of cities in the periphery, namely the

cities of Inchon, Suwon, Anyang, Uejeongbu, Seongnam, Bucheon, etc. The

population growth rates of these cities are shown in Table 6. All these cities grew

at rates much higher than the national average. The cities recorded the highest

growth are Bucheon and Anyang whose growth rates in the late 1970's were as

high as 14.14 percent and 12. 64 percent respectively. The total population of Korea

grew at an annual rate of about 1. 5 percent in the late 1970's, whereas that of

Seoul grew at about 3. 9 percent and those of cities near Seoul at more than 6

percent except Uejeongbu ivhich is located north of Seoul and close to the

,demilitarized zone.

88 S a g 4f Mf1SP(1984)

With regard to the changes in spatial distribution of employment and population, the

following points may be noted.

(1) Spatial distribution of manufacturing employment in Korea, including the Capital

region, appears to have undergone rapid changes from early 1970's with the

beginning of the Korea's new policy impetus of heavy industrialization. The plan

for promoting heavy industries was vigorously pursued during the period the Long-

Term Perspective Plan (1972-1981) which had the objective of achieving the

export of 10 billion dollars and the per capita income level of 1, 000 dollars by

1980. With the beginning of the new industrial policy of promoting heavy

industries, various industrial estates have been developed for heavy and chemical

industries in the southern and estern coastal regions of the country. Examples of

industrial estates for heavy industries developed in the south-eastern part of the

country are Ulsan chemical complexes, Pohang iron and steel mill, Changwon

machinery complexes, Yeocheon chemical complexes, etc.

Table 6. Changes in the Population Distribution of the Seoul Region, 1960'1980

I Growth Rates (%)1960 1966 1970 1975 19801

_ l 11966'70i19 0'5 175975-80

A. Capital Region (A) 5,194 6,913 8,8941 10,924f 13, 302; 6.30 4.11 3.93

1. Seoul (B) 2,445 3,805 5,536 6,889 8,367j 9.37 4.37 3.89

2. Gyeonggi 2,7491 3,108 3, 358 4,0351 4,9351 1.93 3. 67 4.03

a. Urban 543i 8451 1, 174 1,816 2,777 8.22 8.72 8-49

Incheon 401 529, 646! 8 2 8.29 8.28 46.09

Suwon 91 12 1711 224! 311, 7.24 5.40j 6.56

Anyang f - 54 92' 1351 2541 13.32 7.671 12.64

Euijeongbu 1 51 75 961 108! 1331 6.17 2.36 4.16

Seongnam - - - 2 376! - - 6.47

Bucheon 571 109 221' - 12. 97 14.14

Other(Eups) - 59' 112! 168' 397& 16.02 8.11 17.20

b. Rural 2,206 2, 236 2, 1841 2, 219' 2, 158; 0.89 0.32 1 -0.56

3. Capital Region(Urbanj 2, 937 4, 650 6, 710, 8,705 11, 1441 9.17 5.21 4.94

B. Korea (C) 1 24,989 29,193 31, 435' 34, 681 37,445' 1.85 1.96 ! 1.53

Share by Capital Region |

a. Capital Region(A/C) 20. 8 23.7 28.3 31.5 35.7

b. Seoul (B/C) 9.8 13.0 17.6 i 19.9 22.3

Note : Eups in the periphery include only those with population over 50, 000.

Source: National Bureau of Statistics, Economic Planning Board, Report on Population and

Housing Census, 1960,1966,1970,1975 and 1980.


(2) Industrial structure of Seoul has undergone a substantial change since the beginning

of the First Five-Year Plan (1962-1966) in 1962. Change in' industrial structure

appears to have had great influence on change in spatial distribution of manufactur-

ing employment. The leading indutries in the 1960's and early 1970's were mainly

light manufacturing industries such as textiles, plywood, wigs, etc. However, from

the middle of 1970's heavy and chemical industries generally tend to locate close to

cities with international ports and in this respect may be greatly different from

light industries. In the 1960's many light manufacturing indtlistries were conceiltrated

in the City of Seoul and caused the rapid urban concentration of employment and

population into Seoul.

(3) The industries which are relatively highly concentrated in Seoul appear to be metals

and machinery, paper and printing, and miscellaneous manufacturing, as shown in

Table 7. For other industries Seoul's average shares are lower than the national

:~ |(1 er 1

l S -ttIt(r JPa J l

(Lkej tonighu ayct 1 N (;oya,g t A ( capyQnIlgGwiangwvha r J

3 < LXG( %m,angl,g

Siheunig ,c oag ngnan ) I

)@Sml\eon} 2 Yeojti(-. C?,f• ~ I Yongin Ihn(;v yz Iim olgt Ieheon 7I 1waseoig *'

veong Taek eong

Map 4. Spatial Distribution of Manufacturing Employment in Capital Region, 1978

90M J M± +9(1984)

Table 7. Change in Composition of Manufacturing Employment in the Seoul Region

1 9 6 6 1 9 7 0 1 9 7 8

Seoul Gyeong Korea Seoul Gyeongf Korea Seoul Gyeongf Korea

Total 100.0 100.0 100.0 100.0 100. 0 100.0 100.0 100.0 100.0Food & beverages 10.0 10.6 14.7 11.7 9.5 13.6 7.9 5.0 8.4Textiles & leather 27.1 31.4 30.9 27.6 24.4 31.1 30.7 26.1. 33.6

Wood products 2.7 9.6 4.9 2.1 10.4 5.3 ! 1.7 6.5 3.8Paper & Printing 11.3 3.7 6.5 9.0 5.1 5.7 7.3 3.6 4.1Chemicals 11.7 9.8 12.1 12.7 6.7 11.8 10.9 8.7 10.6Non-metallic products 4.3 9. 6 5.8 4.1 10.2 5.8 2.8 6.5 4.5

Basic metals 4.6 7.1 3.3 3.8 5.7 3.7 2.4 4.3 4.2Metals & machinery 20.4 17.3 16.8 19.7 18.8 17. 4 1 29. 6 34. 1 26.9Other mranuf. 7.8 0.8 4.9 9.3 9.2 5.6 6.6 5.3 3.8

Sources: National Bureau of Statistics, Economic Planning Board, Mining and ManufacturingCensus, Various Years. Korea Research Institute for Human Settlements, Data for theBasic Plant for Growth and Management of the Capital Region, Seoul, 1980.

Table 8. Industrial Composition of Employment of Cities in the Seoul Region, 1973, 1980.

Inchon Suweon Seong- Uejeongl Anyang Bucheon Banwolnam bu AnaguhenBwo

Agriculture 1980 432 1241 47; - 2,513 144 -

Mining 1973 9821 - - 14 27 -

1980 453, -I - 45 42 -

Manufacturing 1973 64, 196! -1 13, 4591 5, 362 20, 415 6, 287 -

1980 193, 2651 32, 3041 39,9821 6,778 35, 124 42,982 9,650

Electricity and other utilities 1973 285 179, -j 175 36 111 -

1980 165 120 239, 45 129' 248 22

Construction 1973 2,088 516 1 12l 3 467 -

1980 1,965 20 571 - 220 193 480

Wholesale, retail 1973 572 3, 4421 7,948 679 662 -

1980 45, 229 1 0258 10,592: 6, 038 6, 679 9,803 -

Transport and 1973 14, 513| 2, 50 - 562 1, 069 487Communication 1980 4,182 2, 135 1,2851 2,750 1, 095 642 -

Banking and insurance 1973 10,117 321 - 243 505 287 -

1980 2, 868 1, 008 4251 238 562 1, 339 23

Other services 1973 1, 567, 2, 395! J 26, 872 1, 814 1, 097 -

1980 2,395' 4, 5031 2,746 2,520 2, 556 4,839 -

T otal 1973 94.330 66, 939' 13, 459 41, 285 24, 562 9, 425

1 1980 250,954j 46, 5321 55, 373 18, 369l 48, 9231 60, 190 10,217

Source: Ministry of Home Affairs, Municipal Yearbook of Korea, 1974, 1981.


average. Industries employing the largest number of workers in Seoul are, by order

of magnitude, textiles and leather, metals and machinery, and chemicals. Those

three inddstry groups had 71.2 percent of total workers in 1978. Although the

relative share of textiles employment in Seoul is less than that in Korea as a

whole Seoul shows an increasing trend.

The major industry groups in Gyeonggi province are, by order of importance,

metals and machinery, textiles, and chemicals. Seoul and Gyeonggi province appear

to show differences in industrial structure with respect to heavy versus light

manufacturing industries. Seoul shares relatively large number of light manufacturing

industries, whereas Gyeonggi province has a relatively large number of heavy

manufacturing industries. But the difference is not great.

Urban decentralization from the Capital region may be due to a number of

factors such as high land prices, technological innovation and improved transportation.

d less than0 11.) a.1 v - 1- 1. 1 t

Gapycozig

¢un /e 'edeollgi

>k ' D SIttsal()Gatigwhalaig/C d t

We eaioaig (D-

&s 9 engtanlm

*) ,Sielol cleol 'ejl

j;', S,oC o ()g;all nO

Swi!gtan Jali1lghoveoll

eoiig Taek

Map 5. Urban Population Growth Rates by Cities in Capital Region, 1970r1980.

92 a a X MtVqe(1984)

(4) Out of 7,8 thousand manufacturing firms in Seoul in .1978, about 76 percent are

small firms hiring less than 50 workers. The same figures for Gyeonggi and Korea

are 69. 8 percent and 78. 8 percent respectively. This implies that the size of firms

in both Seoul and Gyeonggi province is relatively larger than that of the country.

However, the size of firms in Gyeonggi province appears to be larger than that of

Seoul.

5) The number of manufacturing establishments has increased substantially since early

1960's. It is important to note that the change in spatial distribution is due to the

presence of firms already in existence or the birth of new firms.

(6) Regarding to the distribution of manufacturing employment in Seoul, the share in

the northern part of Seoul (north of Han River) of manufacturing establishments

in the same year was 63. 8. This indicates that although the relocation of inldustries

from the north of Seoul to the south of Seoul continued, the're are still more firms

El by railroad

0 bv lttIt

/ vjaongbt'

( lJicioi.

Ariyar X ,;; .d/nn

Map ~S 6O ur eoun

Map 6. Regions within One Hour Commuting Distance in Capital Region, 1980


Table 9. Share of Manufacturing Establishments by Southern vs. Northern Seoul, 1970-1978.(In thousands)

1 9 7 0 1 9 75 1 9 7 8

No. 9 No. 9 No. j 6

Northern Seoul 4,798 84.1 3,971 l 1.7 1 4,938 61.7

Southern Seoul 910 15.9 1,570 28.3 2,804 1 38.3

Total 5,708 I 100. 0 1 5, 547 100. 0 7,771 100.0

Source Korea Research Institute for Human Settlements, Data for the Basic Plan for Growthand Mianagementt of the Capital Region, Seoul, 1980.

Table 10. Share of Manufacturing Employment by Southern vs. Northern Seoul, 1970-1978.

1 9 7 0 1 9 7 5 1 9 7 8. -~ - - - -- - - - I - . . . .. - - ..__

No. 9 6 No. 9 No. 96

Northern Seoul 178.5 61.2 223.1 51.5 242.2 45.1

Southern Seoul 113.2 38.8 210.1 48.5 294.2 54.9

Total 291.7 100.0 433.3 100.0 536.4 100.0

Source: Korea Research Institute for Human Settlements, Data for the Basic Plan for Growthand Management of the Capital Region, Seoul, 1980.

in the north as opposed to the south of Seoul. It may also indicate that the firms

that have been relocated from the north of Seoul are mainly large ones. Both

employment and establishment figures may indicate that, due to the policy of

relocating industries from northern Seoul to southern Seoul, relocation has taken

place substantially.

(7) The share of population in Seoul has increased from 9. 8 percent to 21.9 percent

between 1960-1980. But the population growth rates of Seoul changed drastically

in early 1970's. The share of population by Gyeonggi has increased from 11. 0

percent to 12.9 percent between 1960'1980. The population growth rates of

Gyeonggi has also increased during the period. Compared with Seoul, Gyeonggi's

population growth rate was higher in the 1970's. This implies that substantial

relocatio¶h of population from Seoul to Gyeonggi may have taken place. But the

fact that the population growth rate of Gyeonggi is higher than that of the the

national average implies that immigration of population from other areas into

Gyeonggi has also been substantial.

94 :!, 6 -h A Z PTh+(1984)

IV. Evaluation of Industrial Location Policies

A. Identification of Major Policy Instruments

This section seeks to outline the development of Korean industrial location policy,

identifying the range of policy instruments used, prior to a discussion of their effectiveness

and possible lines of improvement. As touched upon earlier in this study, any subdivision

of industrial location policy over time is bound to be very arbitrary. However, a review

of legislative actions concerning industrial location policy would be necessary to trace

changes in explicit intervention in the context of the Korean policy environment.

The first important step was a legislative action, the enactment of the Export Industrial

Estate Development Law (EIEDL) of 1964 as discussed earlier in Chapter II. Its policy

instruments were largely characterized by indirect positive incentives like preferential sale

of publicly-owned land in the designated areas and strong administrative endorsement.

Its main thrust was not, however, tailored to relocate firms but to promote the industrial

estate exclusively accomodating export industries. The positive financial incentives to

attract industrialists to the designated areas were first introduced in the Local Industrial

Development Law (LIDL) of 1968. Being different from EIBDL, direct financial incentive

scheme was introduced as shown in Table 11. Although the absolute amount of tax

exemption or reduction under the provision of LIDL was not throughly estimated, the tax

incentives were not substantial as compared with the total cost of relocation. As Renaud

(1971) pointed out, the Acquisition and Registration Taxes were levied on land and

buildings once at the time of acquisition and would not make a decisive difference between

the Capital region and another location. The rate of the Property Tax was relatively low.

Although key incentives were the exemption or reduction from the corporate income tax,

discount was thought not to be very attractive when a manufacturer considered the share

of financial burden in the total cost of production and relocation.

The second important step with regard to intervention into industrial Itcation was the

enactment of the Industrial Distribution Law in 1978. It was rather complicated though,

and its policy instruments were more diversified, combining both negative controls for

dispersal areas and positive financial measures for receiving areas. The Law introduced

the reduction of corporate tax as much as 10 percent of building cost for relocated plants

into a designated inducement zone and 5 percent into other zones. It newly introduced a

'An Evaluation of Industrial Location Policies for Urban Deconcentration in Seoul Region 95

Table 11. Policy Instruments of LIDLb)

In Case of Relocation from SMAa), In Case of New Location into

Pusan, Taegu Designated LIEC

Corporate Tax exemption for initial 3 yearsreduction of one half for next 2years

Transfer Tax same as above

Property Tax i exemption for initial 5 years e.xemption for initial 5 years

Registration Tax same as above exemption for once

Acquisition Tax same as above exemption for initial 2 years

Building and write off a loss equivalent toMachinery Subsidy building and machinery relocation

from taxable revenued)

a) SMA: Seoul Metropolitan Areab) LIDL: Local Industrial Development Actc) LIE: Local Industrial Estated) Only in case that tax exemption or reduction was not given.

relocation reserve fund with which a firm can write off 10 percent loss from total corporate

profit and also augmented the exemption rate of capital gain tax, acquisition tax and

registration tax both for the sale of land and building occupyed by relocated firm and for

relocated employee's housing in inducement zone. The law also introduced various kinds

of negative control measures for government authorities to issue relocation orders to

undesirable plants such as those located in non-conforming zone by zoning ordinance and

pollution-prone plants in the dispersal zone to the severe restriction of expansion of plant

in the present location. Since the Industrial Distribution Law has been in operation it had

to be revised twice because of its hastiness of implementation and reactions on the part of

industrialists. By the revision of the Presidential Decree on the Industrial Distribution

Law in 1979, firms under relocation order could have a prolonged lead time from one to

two years, depending the ratio of sunken investment in the present site. Another serious

argument had been raised about the indiscriminated inclusion of industries which are

subject to relocation order. The Industrial Distribution Law roughly specified industries

included in relocation order by sheer standard industrial classification, irrespective of

locational requirements. The Presidential Decree on Industrial Distribution Law had to be

revised again in 1980 and reclassified industries which are suitable for relocation order.

Industrial sectors excluded from relocation order were those of so-called residentiary

96 2 :&t MiV9O(1984)

Table 12. Evolutionary paths of Locational Policy Instruments

Direct I-ndirect

Negative Incen.ives restriction of on-site expansion strict enforcement of anti-pollution

issuance of relocation order measureswithhold loan endorcement bygovernment

Positive Incentives tax exemption and reduction preferential sale of landaccelerated depriciation infrastructural investment

* providing loans for moving costs strong administrative back-up

industries which were necessary to meet local demand and could not simply survive or

exist outside Seoul. They were industries of grain-milling, bean custard, printing and

publishing, cement products and ready-made concrete and rice wire manufacturing.

Although the experience of industrial deconcentration program has been relatively short,

twenty-year's policy experiment in a rapidly changing society like Korea may have not

been too short. We may identify some meaningful shift in the use of policy instruments.

In the early stage of intervention the nature of policy instrument was characterized by

public iTivestment in infrastructure which would be defined as indirect positive incentives

in the analytical scheme shown in Table 12. However, infrastructural investment was

thought to be very costly and still ineffective as compared to direct measures and was

regarded infrastructure as accompanying industrial location rather than inducing it.

Therefore, the government felt that more direct positive incentives like the use of a

differential tax scheme and financial assistance in the form of grants or loans were deemed

necessary to be introduced. With the passage of time positive indentives only were not

enough to agitate locational inertia of industrial activities. As pressure for decentralization

increases, the next step was to use a negative control measure in indirect way, for

example, strict enforcement of anti-pollution measures or the deferment of government

endorcement to lending institutions. The last resort was direct negative controls like the

issuance of relocation orders with certain mandates and the restriction of on-site expansion.

Of all the policy measures to influence the location of industry the relocation order has

been probably the most criticized by industrialists. A firm faced with industrial development

controls may not expand at all, or even if it does move to a designated area may do so

with marked rise in costs and loss of efficiency. Evidence on these issues is in difficult to

collect and rarely conclusive.


Table 13. Legislative Actions and Their Policy Instruments

Year Legislative Actions Major Policy Instruments

1964 Export Industrial Estate 1) preferential sale of publicly-owned landDevelopment IPromotion Law 2) provision of basic infrastructure

3) administrative endoresement

1968 Local Industrial Development 1) tax exemption and reduction (see Table 11)Law (LIDA) 2) provision of basic infrastructure

1973 Industrial Site and Water 1) creation of the government corporation in chargeResource Development Law of industrial estate development

2) land price freeze for compensation of the proposedsite for industrial estate

1979 Industrial Distribution Law 1) adoption of national industrial zoning2) reduction of corporate income tax(10% of building

cost for relecated plant into inducement zone and5% in other zone)

3) accounting 10% loss for the purpose of relocationreserve

4) exemption of capital gain tax of ccrroraticn forthe sale of land and Luildirng occupyed Ly relccatedfirrrs from dispcrsal zcne

5) higher basic exemption rate of capital gain tax fcrthe sale of individual premises

6) exemption of acquisition and registeration tax forrelocated wcrker's hoi:sing for initial ciue year

7) accelerated depreciation rate

In the study of 79 firms that moved to Banwol new industrial city which was initiated

to accomocate relocated plants from Seoul in the 1. te 1970's it showed that the cost of

,overall relocation turned out to be extremely high. But the time span is too short to draw

any long-range assessment. Although the cost of relocation is initially expensive, unit costs

may fall over time with lower overhead costs offsetting the initial higher overheads.

B. Effectiveness of Policy Instruments

A measure of policy effectiveness is an essential check on whether policies are achieving

their intended objectives and on whether they are responsive to changing situations.

It may also provide a guide for any necessary adjustments to future policies. However,

for an inquiry into the evaluation of locational policy instruments some immediate issues

may be methodologically raised. First is how to separate the net effect of government

intervention from a natural trend of over-spill or Richardson's polarization reversal

(1977).

Manufacturing enterprises can differ so much from one another in their locational needs

that one hesitates to generalize about the movement of industrial activity out of Seoul.

Some industries have been quite invulnerable to* the creeping obsolescence of the

environment of Seoul; others have been highly sensitive to it. Some have departed from

their central city location; a few are still as highly concentrated in central city locations

as they were twenty years ago. Nevertheless, there are a few generalizations which apply

in some degree to most of the manufacturing establishments found in Seoul. By and large,

the possibilities of finding a new site or greatly enlarging an old site in the central city

became increasingly difficult with passage of time. Zoning regulations were part of the

problem. These regulations often inhibited the expansion of manufacturing in areas where

some manufacturing already existed. Such restraints ordinarily did not apply to plants in

existence prior to the adoption of the zoning requirements. But they did operate to

discourage the radical expansion or total replacement of plants. Even where zoning

ordinances played no role, however, the assembly of a site was a formidable operation.

As the city developed, most of its land was cut up in small parcels and covered with

durable structure of one kind or another. The problem of assembling these sites became

extremely difficult in the absence of condomination power. In these circumstances, many

manufacturing establishments tend to choose a suburban location in replacing their obsolete

structures. Other factors were also operating to push manufacturing into the suburbs.

Some of the main forces which previously had drawn manufacturing plants to the centers

of old cities were being weakened by technological change.

The second issue is how to bring together two conflicting views concerning the

measurement of effectiveness between industrialists and government into one analytical

dimension. Government tends to see the effectiveness of a policy instrument in terms of

the sheer number of firms and workers relocated as immediate policy outcome. Industralists

may look it from the viewpoint of profit and loss criteria. If these two views converge,

policy instrument would be well defined. But it is more than usual that they do not

come together.

The above methodological issues may not be easily overcome. Effectiveness can be

assessed on the basis of trends in various indicators of labor and industrial mobility and

from the responses expressed by the firms relocated. This form of assessment is not

An Evaluation of Industrial L,ocation Policies for Urban Deconcentration in Seoul Region 99

without problems. A compromise approach is adopted. This analysis has attempted to

look from the view-point of industrists who moved into the new industrial city of Banwol.

The industrial city of Banwol, which is located 35 kilometers away from Seoul, is planned

to accomodate firms relocated from Seoul, especially those which are located in the site of

non-confirming use and are against anti-pollution measures in Seoul. The selection of firms

to be interviewed was taken on total enumeration because the number of firms relocated

in Banwol was only less than one hundred. The survey was conducted in December 1980

essentially to evaluate the effectiveness of government policy for attracting firms to Banwol

and to detect any profit or loss which the relocated firms has to accept by the relocation

decision.

The need to consider a new location is usually the result of a strong impetus or push.

The pressures providing this impetus are both internal and external to the firms. in the

case of Banwol, location decision was largely made external to the firms. Out of seventy-

nine firms responded, fifty firms which were located in non-conforming zone or against

antipollution measures, or- 63. 3% answered that they did have no choice except complying

with relocation order. It has also to be noticed that twenty-six firms were newly created

in Banwol as shown in Table 14.

Table 14. Major Reasons for Location in Banwol

Reasons No. of Firms Percentage

Previously located in non-conforming area 19 24.1Relocation order issued by anti-pollution measures 31 39.2Newly located and for expansion 26 - 32.9Others 3 3.8Total 79 100.0

The creation of new firms and the relocation of existing firms for expansion was the

second major reason for movement into Banwol. This was associated with difficulties in

the search of new site in Seoul where the price of land was prohibitively high and the

area zoned for industrial use was almost exhausted. In many cases a combination of these

factors were at work and the general pressure had been building up over time before a

relocation decision was made.

Other items in the survey were changes in accessibility to raw materials and components

after relocation, the present living place of workers, the reason and composition of

increased operation expenditures by relocation, the amount of loans [received and their

100 ___ f A M+Vge(1984)

uses, response to loans, and the amount and kinds of tax exemption and reduction.

Sixty-eight or 86. 1% expressed the opinion that access v) new materials or to theexisting source of raw materials worsened as compared with previous location. For the

majority of firms, access to suppliers and sub-contractors was considered very important

for relocated firms. More than 8696 of the relocated firms felt that relocation resulted in

some extra time and overhead expenditures as given in Table 15.

Table 15. Access to Raw Materials and Components

Responses No. of Firms Percentage

Better access | -Same as before 11 13.9Worsenpd 68 86.1

Difficulties with labor in the new location were the most common cause of complaints

for the industrialists in relocated plants. Sixty-four firms put forward labor as the one

factor in the choice of new location which had not received enough attention in the

planning stage and was causing the most critical problems in new locations. For some

firms, there was difficulty in obtaining the right kind of labor. Five companies complained

of the lack of management recruits in the new area but more common were difficulties in

obtaining skilled manual labor. The difficulties of encouraging workers to move with a

relocated plant were invariably spoken out. As shown in Table 16, more than 54% of

workers were living in Seoul and neighboring cities on a commuting basis. Parity of

wages with the previous working place was another issue which arose when many workers

demanded higher wage in order to compensate time and monetary cost incurred by

commuting.

Table 16. Present Living Place of Workers

Places No. of Workers Percentage

Seoul 198 38.2Suwon 13 2.5Other cities 70 13.5Banwol 237 45.8Total 518 | 100.0

Various other difficulties were expressed by the interviewees as lessons learnt for the

future. Twenty-one firms had trouble getting into full operation after relocation and in

an extremle case had to cut operation hours to one half because of increased operation

An Evaluation of Industrial Location Policies for Urban Deconcentration in Seoul Region iO1

expenditures as shown in Table 17. Fifty firms or 64% answered that pay raise had been

made. Twenty-four firms or 31% responded transportation overhead cost had increased.

Although it was not possible to measure with a certain accuracy the increased operation

expenditures by relocation, almost all firms expressed the view that operation expenditures

such as pay raises and transportation costs increased as much as 40%.

Table 17. Rate and Components of Increased Operation Expenditures(UJnit: firms)

Increased Rate Pay Increase Transportation Others Total

10% 6 (60.0%) 4 (40.0 ) l(1)

20% j 11 (50.0%) 11 (50. 0% j 22

30% 1 25 (75. 8%) 6 (18. 2%) 2 (6.1%) 33

40% 8 (61.5%) 3 (23. 1%) 2 (15.4%) 13

Total 50 24 4 78

The positive incentives offered by public authority are broadly of two kinds. Firstly,

there is the range of financial incentives given by the government for all locations

within the designated areas. And secondly there are incentives and attractions which

relate to specific areas ot towns only. This second group is strongly related to locational

policies of local authorities and the locational decisions of private developers. Details of

the various grants, loans, subsidies and incentives available to the firms moving into the

designated areas have already been discussed. The overall scale of assistance in one form

or another was not substantial enough for a transfer move in bridging a gap in the

company's loss while the move was in progress. Positive incentives for industrial relocation

were made by loans rather than grants and subsidies. In Korea where the borrowing of

money from the commercial banks has been a special kind of favor for business and has

not been easily made by the government's endorsement, thirty-six firms or about 53%

responded that the provision o: loans was greatly appreciated as summarize in Table 18.

However, the availability of loans necessary for the capital expenditure of buying land

and also for the fund of internal operation played an important role in proceeding the

Table 18. Attitude and Response to Loans

No. of Firms I Percentage

Without loans relocation was impossible 36 52.8%

Loans were helpful but not substantial 1 20 29. 4%No or minimum help 11 16. 2rc

Others I 1 1.6%

102 M I aS 0 gM+ S g 14)

Table 19. Amount of Loans and Their Uses(Unit: million wona))

Year | Tses No. of Firms Amount

1978 Purchase of land 36 1, 466Internal operation -

1979 Purchase of land 89 4,005Internal operation 21 1,158

1980 Purchase of land 80 3.955Internal operation 25 2, 225

a) $ j=about 740 won

relocation scheme to Banwol. The amount of loans lent to the firms is given in Table 19.

As compared with loans in terms of magnitude and substantiality, the amount of tax

exemption was rather nominal. Only eighteen firms were eligible for tax exemption and

the total amount was 563 million won or about $ 800, 000.

Table 20. Amount of Tax Exemption and Components(Unit: 1, OOO won)

| No. of Firms | Amount

Corporate Tax 2 8, 575

Relocation Reserve Fund 9 123, 378

Capital Gain Tax 7 431, 333

Total 18 563, 336

The city of Gumi was. chosen to be compared with Banwol. Gumi is situated about

half an hour from Taegu which is the third largest city with a population of about 2

million in Korea. It has been newly developed as an industrial city for the electronic and

textile industry since early 1970s. As of 1980, 167 firis were in operation and some more

firms were expected to move in. Twenty-two firms were randomly sampled for the analysis,

taking into account the size and industrial sectors of firms in operation. Being different

from Banwol, Gumi industrial estate was planned to accomodate newly created firms

rather than relocated ones. Only two firms in our sample of 22 firms were relocated from

somewhere else. As shown Table 21, more than two third of firms responded that they

were attracted by clustering economies and the special kind of services rendered by

cooperative estate development like custom clearance and industrial waste treatment.

Major locational decisions of entering firms were not made by other factors aside from

their own judgement, even though governmental financial incentives in terms of tax

exemption and reduction, loans and grants might have been greatly facilitative. More than


Table 21. Major Reasons for Location in Gumi

No. of Firms Percentage

Attracted by incentives 3 13.6

Seeking the benefit of clustering economies 12 54.5

Cooperative estate development 5 22.7

Relocation order received 2 9.1

Total 22 100. 0

:30 percent or 7 firms located without any help from the gevernment as given in Table

22. This does not mean that all the firms did not have problems. Major complaints for

the firms located in a local city where is located 250 kilometers away or about 4 hours

by car from Seoul, were low accessibility to buyers and suppliers and thereby increased

transportation and communication costs.

Table 22. Response to Government's Financial Incentives

| No. of Firms Percentage

Tax exemption and reduction 11 50.0

Loans 2 9.1

Subsidies 2 9.1

No support 7 31.8

Table 23. Types of Complaints by the Firms in Gumi

Complaints No. of Firms Percentage

Difficult to obtain workers 3 7.5

Increased transportation communication costs 12 30.0

Too far from market 9 22.5

Less accessible to buyers and suppliers 16 40.0

Differences between Banwol and Gumi have existed from the start of development;

Banwol in essence that was developed for relocation and Gumi for new location. But it

may be noted that the performance of Gumi as a new industrial city looks better than

that of Banwol at least from the assessment of industrialists involved. Learning from the

two cases, industrial location policy and its concommitant policy measures should have

been differentiated by relocation and new location. While relocation tends to take a short

move, new location may tolerate relatively longer distance away from the existing cluster

of industries in the early stage of industrial estate development. The clustering of a few

selected industrial sectors tends to be instrumental, rather than the inducement of

104 ___ 4 l; 94+E-IB(1984)

diversified industrial sectors. Distance from a large metropolis must be very important

consideration. But physical distance is not enough. Shortened time distance and improved

communication network may overcome the inconvenience of physical distance.

V. Review of Current Policy Situation

A. Current Policy Situation

Many planners and government officials in Korea strongly believe that Seoul is

excessively large. Its size and growtl. should be limited by various government programs.

Since the assassination of President Park who was a strong advocator for decentralization

policies there had not been much talks among planners and experts in Seoul about

industrial policies and deconcentration measures. From January 1981 to April 1982, the

government even announced various policies revoking previous deconcentration measures.

HoIvever, from middle of May 1982, the government began to announce policies whose

characteristics are very similiar to earlier deconcentration measures. As government officials

appear to be firming up their orpiluons to deconcentration policy for Seoul, it may be too

early to make any conclusive statements. Therefore, in this section we will just review

very briefly the most importan. plans with respect to industrial policies. The National

plan for Population Redistribution from Capital Region (1977-1986) represents the

government's strong desire and serious attempts to limit the growth of Seoul, In addition

to the plans for manufacturing relocation, the Plan included plans such as restriction of

education, the dispersal of government offices, the construction of new capital city,

development of major regional centers especially in regions south of Taejeon, and

restriction of most economic activities in the northern part of Seoul. For the implemen-

tation of the Plan various governmental organizations were created. They include the

Council for Urban Deconcentration for the Capital Region chaired by the prime minister,

the now defunct bureau in the Office of the Minister Without Portfolio, and the Special

Task Force at the office of the Secretary to the President for economic affairs. According

to the Plan, the main target of the Plan was to limit the population of Seoul to 7 million

by 1986.

However, as the population of Seoul exceeded the 8.4 million level already in 1980,

coupled with the severe slowdown of the economy since 1980, also as complaints from

both businessmen and ordinary citizens increased because of lack of facilities such as

An Evaluation of Tndustrial Location Policies for Urban Deconcentration in Seoul Region 105

schools, restaurants, shopping centers, and other public services caused mainly by the

government deconcentration policies, it was inevitable for government to start relieving

various regulations limiting industrial activities in Seoul. Many deconcentration policies

included in the 10-Year Plan such as the new capital city plan have already been

abandorted. Also, the major government office in charge of the task of urban deconcentration

for Seoul has also been reduced from a ministry level to merely a bureau level, namely a

bureau at the Ministry of Construction, which appears not to be in a good position to

actively enforce various programs affecting the interests of other ministries.

The drastic change in the belief and attitude of the officials of the present government

as to the present deconcentration policies for Seoul took place in 1980. It was due to

various factors including the slowdown of the economy, the reduction of government

organization, and political and social change. The most important one appears to be the

policy of liberalizing the economy. In the process of liberalization, various government

regulations have been relaxed. It may be very important to know whether the liberalization

measures will not be reversed toward this issue.

The following may be some of the many factors that will cause continuous concentration

of industries and population in Seoul. They include deregulation of concentration measures,

massive overhead investment in Seoul including the extensive subway system, and the

facilities to be dev;eloped especially in connection with 1988 Olympic Game and 1986 Asian

Game. Judging from these facts, we can safely say that the rapid concentration of

population and industries in Seoul will continue to be one of the most important national

issues in the future. This may explain in part why the Korean government attempts to

prepare the National Plan for Industrial Location (1982-1991). As the Plan covers the

whole country, it is much different from the Population Redistribution Plan for the Capital

Region which addresses industrial relocation within Seoul and its metropolitan area.

The other important plan which is now being prepared by the Ministry of Construction

in association with the Korean Research Institute for Human Settlements is the Basic

Relocation Plan for the Capital Region (1982-1991). The Plan attempts to manage the

Capital region by dividing it into five sub-regions -as shown in Map 7, and manage each

of them according to its regional characteristics.

The basic guidelines and directions for the 10-Year National Plan for Industrial Location

and the 10-Year Basic Capital Region Plan have not yet been finalized. This may be

because the government has changed recently its policy attitude toward growth and

Map 7. Five Sub-planning Zone in the Capital Region

Developmen * EuipResioervationZoe

, Redevelopmernt' :

~'~'~'2 RK 1'rom~otioniZone J

cR i -Re'our cConseorvationi Zoiw

* )eelopment

110e-trictioli Z(l

D)evelopment Inducement Zone

Source: Korea Research Institute for Human Settlements, The Second Comprehensive NationalLand Development Plan, 1982-1991 (Draft), 1981.

management of the Capital region so much that no one may yet be in a position to

finalize the policy guidelines as to the future of the Capital region. In addition the 10-

Year National Plan for Industrial Location has not been supported by the systematic

studies.

The Plan that could be useful to some extent in formulating the future industrial

location policies in Korea may be the Second 10-Year Comprehensive National Land

Development Plan (1982-1991) formulated by the Ministry of Construction in association

with the Korea Research Institute for Human Settlements. The major contents of the

10-Year National Land Developmnt Plan in the area of industrial location are to develop

seven major industrial zones as shown in Map 8. The seven industrial zones (IZ) to

be developed throughout the country are Seoul-Incheon IZ, Wonju-Chung-u IZ, Taejeon-

Cheongju IZ Jeonju-Gunsan IZ, Taegu-Gumi IZ, Kwangju-Mokpo IZ, and Southeast


Map 8. Planned Industrial Zone (IZ)

Wonj'u-Chungju IZ0

Seotil-Itncheon LZ C

Dae jeoni-Cheonig ju IZ U

Jeonju-Gunsan Daegu-Gumi IZ

Cvar;g1'j"j1-MN!ekpo IZ

-eCoastal IZ

17x.isting Planned CnrlaeU industrial B Control area

--complex

Source: Korea Research Institute for Human Settlements, The Second Comprehensive National

Land Development Plan, 1.982-1991 (Draft), 1981.

coastal IZ. The name of industrial cities to be developed and the amount of industrial

land to be developed in each IZ are shown in Table 24.

Table 24. Planned Industrial Zones(Unit: KM2)

Industrial Zone(IZ) 1 9 7 8 1 9 8 6 1 9 9 1

1. Southeast Coastal IZ

Total 70. 03 119-63 135.87

Pohang 9.60 15.70 15.70

Ulsan 17. 26 24.69 24.69

Onsan 5.60 8.23

Busan 19.21 21.79 I 23.15

Masan 6.43 6.89 7.10

Changweon 6.39 18.18 18.18

Geoje - 3.84 4.51

Anjeong 0.96 2.61

Sacheon - 1.00

108 ft A M X i+ (1984)

Industiai Zone (IZ) 1 9 7 8 1 9 8 6 1 9 9 1

Samcheonpo 0.23 0.57 0.90Chilseo - 0.41 0. 60Jinju 1.15 2.12 2.23Yangsan 1.00 1.27 1.27Yeosu 8.55 11.99 11.99Gwangyangman - 5.00 12.00Suncheon 0.21 0.62 1.71

2. Daegu-Gumi IZ

Total 15. 4? 25. 51 30. 58

Daegu 6.42 7.48 10.19Gumi 8.62 11.92 13.09Geumho 0.33 0. 88 1. 17

- 1.96 1.96Nongong - 3.17 3.17Yongcheon - 0.10 0.50Gyeongsan I - - 0.50

3. Gwangju-MIokpo IZ

Total 3.08 5.67 16.65

Gwangju 1 2.51 3. 37 8.22Mokpo 0.57 1.00 4.69Geumseong - 0.10 0.52Gwangsan - 1.20 2.56Songjeong - - 0. 66

4. Jeonju-Gunsan IZ

Total 4.43 10.37 14.81

Gunsan 1.26 4.50 7.89Iri 1.31 3.27 3.72Jeonju ! 1.86 2. 60 3.20

5. Daejeon-Cheongju IZ

Total a 8.44 10. 56 22.71

Daejeon 2.76 3.03 3.63Cheongju 1.48 2.36 4.03Daeduk 4.20 5.17 15.05

6. Weonju-Chungju IZ

Total 1.20 1.80 5.81

Weonju 0.56 0.65 1.98Cheongju 0.64 0.95 2.00Jeocheon - 0.20 1.09Munmo - - 0.74


Industrial Zone(IZ) 1 9 7 8 1 9 8 6 1 1 9 9 1

7. Donghae-Samcheok IZ

Total 0.12 1 3.67' 8.32

Gangreung 0.12 0.20 0.25Donghae - 3.47 8.07

8. Rural Industrial Center

Total - 0.91 2.99

Hongseong - - 0.51Yeongju - 0.15 0.56Jeongju - 0.14 0.50Namweon - 0.10 0.60Geochang I - - 0.26Anseong - 0.52 0.66

Source: Korea Research Institute for Human Settlements, The Second Comprehensive NationalLand Development Plan, 1982-1991 (Draft), 198X.

It may be said that various industrial location policy instruments in Korea as of now

may be at still the transitional stage. Newer and more efficient ones will have to be

devised in the near future.

B. Research Needs

Korea is densely populated, mountainous and resourcepoor country. As about three

quarters of the country is hilly, most industries and population have to be located in a

small amount of flat land. The recent rapid industrialization and urbanization has caused

the rapid change in spatial distribution and movement of population and .industries in

such a small country. In Korea, efficient utilization of scarce land and space 'may be an

issue directly related to the survival of the economy and population.

It is surprising to find that, despite the extreme importance of industrial location

policies and urban deconcentration measures in Korea, there has been very little serious

and systematic study on the subject.

In conjunction with the Eindings of Kwon (1981) and Klassen (1980), the following

are categorically summarized the research needs in the areas of industrial policies and

deconcentration measures in Korea.

The first policy issue to be investigated extensively should be the question of timing in

initiating industrial dispersal program. When the natural tendency for overspill has begun,

the efficiency of industrial relocation may be increased. In this respect, Korea has been

experiencing some hopeful signs of overspill or polarization reversal. As indicated in the

preceding chapter, the Capital region has begun to show a dispersive tendency between

Seoul and the surrounding Gyeonggi province. The underlying reasons for these changes

are not well articulated. It is extremely important to know the magnitude and characteristics

of industrial movement before any sort of prescriptive policy for industrial location has

to be made. The relocation of firms and industries from Seoul to the rest of Gyeonggi

province would be much easier to achieve because they would be able to sustain contacts

and linkages with Seoul. Timing is also important in terms of the stage of irndustrialization

and business cycles.

The second is optimum distance for the relocation of industries and people. It is closely

related to the choice of areas for relocation. Throughout the twenty years of regional

development policy no specific criteria has been articulated for the selection of areas for

industrial relocation. The concept of eight regional centers of the First Comprehensive

National Land Development Plan and five growth center in the National Plan for

Population Redistribution had only symbolic significance and remained as a textbook ideal

of growth pole approach. The locational choice of local industrial estates and new

industrial cities was made outside the ground framework of the above-mentioned two

Plans. Sites of industrial estates were largely decided on the basis of incremental and

political compromise, basically depending on immobile locational factors like water and

shipping ports. All those industrial estates and cities were initially planned to accomodate

newly create industrial establishments rather than relocation from somewhere else. In the

case of Gumi, which is located 250 kilometers away from Seoul, only two firms out of 22

firms relocated from Seoul as compared with 31 firms out of 79 firms in the case of

Banwol. However, it is still hypothetical postulation that the closer distance to Seoul the

more plausible for relocation from Seoul. It can be empirically analyzed from the past

industrial movement in Korea and can shed light on further refinement of choosing a

proper area of relocation and deciding an agreeable distance of location.

Short distance movement is more desirable and would be more consistent with national

economic efficiency goals. Especially, it is true for small firms. New large firms with

more than a certain number of employees tend to locate near the periphery while the

births of small firms tend to take place near the center. This issue is related to the

concept of urban area or metropolitan area, It is important to determine the boundary of

urban areas in making decisions concerning deconcentration and accomodation of industries.


The third issue to be needed for an in-depth inquiry is what kind of industrial groups

should be moved out. By and large, the selection of relocating industries determines the

success of relocation policy. The policy has to be formulated by the size of firms, the

type of production, the distribution of market and supply areas, and labor availability

and cost, and so on. If the firms are large enough, their dominant brand names usually

exert superior marketing power and the producer gains more freedom to select his location.

Relocation program must proceed easily with more sizable firms because they can take

the risk of moving out. It should not be overly concerned with the sheer number of

employees which will affect the population decentralization. But it is little known about

the size of firms which would tolerate the shock and cost of relocation.

The fourth issue is related to the synchroniiation of negative and positive instruments

to put efficiently forward industrial relocation. Dispersal policies would not be effective

unless they are simultaneously taken by the negative incentives of sending areas and the

positive incentives of receiving areas. Korea's locational policy intsruments are characterized

by the stringent use of negative instruments. Some instruments would be redundant and

detrimental. But the provision of overspill reception areas is needs to be strengthened in

terms of investment and concerted effort. Providing public services institutions and

educational facilities are among the prerequisites for industrial relocation program. The

past performznce of industrial relocation was limited to the provision of infrastructures

for the in-coming industries peruse. More attention should be paid to the provision of

necessary services for the employees such as housing and educational institutions.

Particularly smaller firms are susceptible to losing qualified workers during the relocationprocess.

The fifth issue is concerned with the coherency and substantiality of explicit policy

instruments. The use of financial, instruments (grants, preferrential loans, tax relief, or

additional taxation) must be substantial if it is to affect industrial choices. However, it is

little known to what extent policy instruments is becoming a critical sum to make

-relocation schem'e workable. Government actions as well as policy instruments should be

carried out in coherent manner over time. Otherwise, eligible relocators may take an

attitude of wait-and-see until the policy and its instruments are firmly settled.

The sixth issue is the degree of effectiveness of various deconcentration policy

instruments. It appears to be extremely important to find the types of policy instruments

which have (1) strong effects, (2) weak effects, (3) negative effects, (4) negligible effects,

112 a M tPV(1984)

(5) detrimental effects, (6) no effects, etc. There may also be some policy instruments

like sheei endorcement on the part of government authority whose effects are, hard to

determine.

The seventh issue is related to linkage effects of industries to be relocated to other

industries and infrastructure facilities. The analysis of the relationship between the move

of industries and the move of nonindustry s ctors such as households and governments

may be important. But the focus here may be on interindustry relationships. This issue

appears to be important when a group of industries with strong linkages is relocated.

Interindustry linkage is also important in screening types of industries to be relocated.

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Dynamic Modelling and Control of National Economies 1983

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