An Analysis of the Minimum Efficiency Scale for Local Autonomies in Korea

Abstract

This paper analyzes the Minimum Efficiency Scale (MES) for local autonomies, on the basis of the Hayashi 2012 model. We estimate the MES of local autonomies in Korea using panel data for 73 cities during the period 2002-2010. The main findings of the paper are as follows. First, we find that there are technical economies of scale in local public services as a whole. Second, classifying local public services into the four categories of general administration, economic development, social development, and civil defense, we find that there are technical economies of scale for all categories except civil defense. Third, we try to find the MES for local autonomies by estimating the average costs of local public services as linear and quadratic functions of the logarithm of population. We find that quadratic functions fit the data best and that there are U-shaped curves for all categories of local public services. More importantly, the MES for local autonomies is bigger than the actual size of local autonomies in Korea.