Has regional disparity been reduced in Korea?: A sectoral approach

Abstract

Since mid-1980s, notably after the Democratization Movement in 1987, Korea had moved from an unbalanced regional development policy to a more balanced one. As the first study for Korea, this paper examines the contribution of sectors to output disparity for 15 Korea's regions for 1989-2012. The major finding is that, quite contrary to the experiences of the OECD countries presented in Bernard and Jones (1996), the services industry in Korea shows no sign of labor productivity convergence, while the manufacturing industry mostly drives labor productivity divergence, leading to the aggregate non-convergence result for 1989-2012. Thus, contrary to the popular expectation, a rapid decentralization of industries did not contribute to the reduction of output disparity across Korea's regions. The potential impacts of economic liberalization realized after joining the OECD in 1996 and the aftermath of financial crisis in late 1997 contributed to increases in the regional disparity in Korea.