Regional development

 Korea’s regional unbalanced status

Korea has achieved impressive economic and social development during the past few decades. Nevertheless, it is still challenged by some problems that the unbalanced development has caused at the sub-national level. The nation-wide unbalanced development in Korea has also resulted in a geographic concentration of the population and a regional imbalance of economic activities.

 Korea has a low share of the population in rural regions

The rapid industrialisation that Korea experienced has accelerated migration patterns and demographic trends from rural to urban. The country has experienced unbalanced land-distribution and demographic patterns brought by rapid population changes since the 1960s, called the period of industrialisation. According to the two OECD reports, the share of the rural population has decreased gradually based on the national definition, from representing 60% of the total population (or 18.2 out of 30.8 million) in the 1970s to only 19% (9.7 out of 51.6 million) in 2018.

The OECD study also shows demographic disparities in Korea. The OECD has developed regional typologies to allow for international comparisons and comparisons of regions with similar characteristics, as explained in the previous section. According to this study, Korea now has the fourth-largest urban population amongst OECD countries after the United Kingdom, the Netherlands, and Australia. Based on the OECD TL3 classification,1 in 2018 some 17% of the Korean population lived in rural regions, namely rural regions close to cities.

 

Figure 1. Distribution of population by metro and non-metro TL3 regions (2018)

Source: OECD Regional Statistics database.

To solve the unbalanced development, the Korean government has adopted a balanced-development plan as the national strategy for decades. The OECD indicators show that Korea’s endeavour is achieving results. According to the two studies, Seoul’s share of the national population declined from 21.3% in 2001 to 18.8% in 2018. Meanwhile, Sejong saw its population more than double from 2012 to 2018, adding 219,161 residents. The neighbouring rural region of Chungcheongnam-do also increased its population, by 284,160 during 2001-18, representing a 13% increase.

According to the OECD’s geographic-concentration index, Korea’s high level of demographic concentration first increased from 2001 to 2011, then this trend reverted and declined from 2011 to 2018.

 

Figure 2. Geographic concentration of population index among Korean TL3 regions (2001‑2018)

Source: OECD Regional Statistics database.

At the regional level, Seoul and Gyeonggi-do, the capital region with the highest population share, and two regions, Sejong and Chuncheongnam-do, showed different population dynamics over 2001-18. In 2001, Seoul was home to 21.3% of the national population, followed by Gyeonggi-do at 20%. In 2018, however, the population share in Seoul decreased to 18.8%, in contrast to Gyeonggi-do, which experienced an increase to 25%.

 

Figure 3. Population shares in Seoul and Gyeonggi-do (2001-2018)

Source: OECD Regional Statistics database.

 Korea shows unbalanced development in regional economic activities

Similar to its demographic patterns, Korea is also facing unbalanced concentration in economic activities. In 2017, the capital city Seoul and Gyeonggi, the region that surrounds the capital, accounted for approximately 45% of the national GDP, the largest share of economic activities in Korea. According to the OECD studies,2 Korea is among the top 10 OECD countries with the highest index of geographic concentration of GDP among TL3 regions.

 

Figure 4. Index of geographic concentration of GDP (TL3 regions), 2017

Source: OECD Regional Statistics database.

 Historical evolutions of regional policies in Korea

Korea’s rapid urbanisation and economic growth have exacerbated imbalances between regions within the country, creating concern and a socio-economic policy response for those left behind. Korea’s rural areas remained in poverty, and most rural residents lived in absolute poverty because agricultural productivity was low throughout the 1950s and 1960s. Thus, the Korean post-war regional policy is highlighted by the “development era” that began in the 1960s, followed in the 1980s by a growing focus on achieving more balanced national development. The New Village Movement (Saemaul Undong) in the 1970s helped shape Korea’s rural areas. These regional and agricultural policies contributed to the remarkable increase in agricultural production and the development of rural areas throughout the development era in the last century.

Despite Korea’s economic improvement, the government devoted much of its attention to industrialisation. Rural areas and rural policies were marginalised, resulting in rapid urbanisation accompanied by industrialisation and a growing disparity. This drained communities of vitality, and put pressure on public services in remote communities, ushering in the development gap between urban and rural areas. The rural population thus rapidly decreased in the 1980s.

To address its unbalanced development path, in 2004, the government sought to carry out several large-scale projects to build new cities, and started relocating government agencies to underdeveloped areas aiming to decentralise government functions that had been mostly concentrated in the Seoul metropolitan area, the capital region.

The Multifunctional Administrative City, for example, has been constructed with the goal of becoming a self-supporting city of 500,000 inhabitants by 2030. Called Sejong City, it is located approximately 130km southeast of Seoul along the Chungcheongnam-do and Chungcheongbuk-do border, with its territory drawn from both provinces.

Along with the development of Sejong, in order to promote the balanced location of administrative functions, 10 Innovation Cities are also being developed nationwide. These are being constructed to accommodate not only government organisations (as well as housing for their staff) but also private actors including enterprises and universities, in the hope of creating innovative clusters. The government aims to relocate 154 public agencies from the capital region to the provinces and metropolitan cities.

In 2017, new Korean government included decentralisation as one of the top 100 tasks: “to promote well-balanced development across every region (Goal IV)”, “to promote autonomy and decentralisation to realise grassroots democracy (Strategy 1)”, and “to strengthen fiscal decentralisation for financial autonomy (Task 75)”.

In March 2018, as the revised bill of the Special Act on Decentralisation and Restructuring of Local Administrative Systems was promulgated, the Presidential Committee on Autonomy and Decentralisation was established. The “100 national tasks” programme includes measures to transfer functions of the central government to local governments and to increase the budgets allocated to local governments.

 Korea’s national balanced development strategies

To mitigate the high level of concentration in terms of population and economic output, the Korean government has implemented a range of policies to reduce pressure on the capital region and rebalance the rest of the economy. In doing so, the government has increasingly looked to improve basic service provision and invest in large-scale growth hubs in rural areas.

 Innovation Cities as balanced regional hubs

Korea’s Innovation Cities initiative began in 2004, with the execution of the Special Act on the Construction and Support of Innovative City Acceptance of Public Institutes Relocating to Local Cites. A total of 153 public institutions were relocated from the capital area, distributed across 10 of the country’s secondary cities, a process that was completed in May 2020. The initiative was intended to ease pressure on Seoul while catalysing the development of the country’s secondary cities through the relocation of public institutions, along with their staff and families.

 

Figure 5. Map of Korea’s Innovation Cities

Source: OECD elaboration based on MOLIT (2020), Innocity, https://innocity.molit.go.kr.

The initiative has involved the development of new districts within each of the host cities, including new offices and other commercial amenities for the relocated institutions and new housing areas for the workforce.

Along with the relocation of public institutions, the initiative has sought to bring together academia, research institutions, and enterprises with the intent to spark new engines of innovation and economic growth. A near-term impact has been to drive up the population of the host cities, with the Innovation City districts now home to a combined population of 204,716. This population grew by 11% in 2019 over 2018 and supported similar growth of 10.9% in local tax revenue.

At the same time, the government has invested to improve the public services, housing, cultural amenities, and transportation infrastructure in these cities to encourage the relocation of staff and help them integrate into their new communities. For each of the cities involved, the policy has notably identified a theme aligned with the city’s existing industrial characteristics. The theme informed the selection of public institutions that were relocated to each city; the intent is to develop the themes into brands that will enhance the city’s image and help attract investment.

With the relocation of institutions now complete, the initiative is now moving into its “second season.” In this phase, control has shifted from the central government towards local leadership, with local governments taking the lead on planning for the further development of their Innovation City over the next five years. The focus is also shifting from the public institutions towards the private sector. An important goal of the Innovation Cities initiative moving forward will be to foster regional hubs, innovation clusters that leverage the existing strengths of each place in combination with the relocated public institutions and with investment and incentives to spur private-sector innovation and growth. In this second season, a new emphasis has been placed on better integrating the relocated agencies, institutions and their workers into the local community and on improving the quality of life for residents by building social infrastructure. To strengthen the relationship between the relocated institutions and their host cities, new targets have been set for 2022 on local hiring (30%) and on leveraging local suppliers in procurement activities (20%). In 2019, 25.9% of individuals hired by the relocated public institutions were of local origin (versus 21% targeted) and 13.4% of procured goods were locally sourced.

 Smart Cities as new models of future regional cores

Over the past two decades, Korea has been championing smart cities to boost economic growth, inclusive development and sustainability. Its leadership has helped inspire the creation of the OECD Programme on Smart Cities and Inclusive Growth as a platform for cities, regions, national governments, the private sector, civil society, academia, philanthropy and international organisations to share lessons, new trends and initiatives on how smart cities can contribute to well-being. In December 2020, as part of the OECD Programme, Korea hosted the 2nd OECD Roundtable on Smart Cities and Inclusive Growth, which highlighted the important role smart cities could play in recovery plans.

According to the OECD studies, definitions of smart cities vary across countries and institutions based on the geopolitical context and on the specific issues at hand, because the smart-city concept is still under development. In any case, smart cities are characterised by initiatives that use digital innovation to make urban service delivery more efficient and thereby increase the overall competitiveness of a community. In most cases, the smart-city concept initially referred to initiatives that use digital and ICT-based innovation to improve the efficiency of urban services and generate new economic opportunities in cities. The OECD defines smart cities as “initiatives or approaches that effectively leverage digitalisation to boost citizen well-being and deliver more efficient, sustainable and inclusive urban services and environments as part of a collaborative, multi-stakeholder process.”

The OECD studies4 mentioned that Korea has championed smart cities by leading large-scale projects in this sector. Korea also offers an interesting example of how smart-city policies have changed over time. Since the early 2000s, the Korean government has viewed smart cities as an engine of future growth. Three periods can be distinguished in Korean smart-city policies: i) the construction stage (2003-2013); ii) the connecting stage (2014-2016), focusing on connecting smart city services and building governance structure; and iii) the enhancement stage (2017-2020), during which the government placed emphasis on developing innovative smart cities and creating a smart-city ecology.

Initially, Korea’s smart-city project started from the Ubiquitous Cities initiative. In 2003, the Dongtan new town project began, serving as the initial model of Korean smart cities. This ambitious project included commercial urban services such as the bus-information system and CCTV for crime prevention through digital technologies. This era is referred to as the construction stage, during which smart-city development was limited to “new towns.” However, the enactment of the U-City Act, which provided the legal framework for smart city development, was needed to support this project. The Korean government therefore enacted a comprehensive legislation system for supporting U-City construction in 2008.

By 2012, 50 cities and counties had implemented some form of U-City project within four years after the enactment of the U-City Act. The government spent 1-3% of the total cost of new-town construction for the construction of U-City infrastructure such as ICT and integrated operation-control centres, which cost on average KRW 40-60 billion.

 

Figure 6. U-Cities in Korea (2012)

Source: Lee and Chang (2019), The evolution of smart city policy of Korea, Smart City Emergence, Elsevir.

After the U-city project, the Sejong City and Busan Metropolitan City projects were inaugurated as the national smart-city pilot projects in 2018. These two projects are intended not only to solve urban problems. Indeed, they aim to provide smart-city test-beds for establishing innovative smart city ecosystems and introducing cutting-edge smart-city solutions.

These pilots are the national government’s large-scale development projects. According to the government, the pilot project in Sejong is located in the 5-1 residential district. It covers 2.7 km2 with population of 19,000 residents in 8,900 households, for a total estimated cost of KRW 1.4 trillion. The pilot project in Busan is the Eco-Delta City district. It covers 2.8 km2 with a population of 8,500 residents in 3,300 households, for a total estimated cost of KRW 2.2 trillion.

Korea is designing the two pilot cities with different themes. Sejong focuses on smart mobility and health care. Its master plan emphasises transport based on innovative technologies such as driverless vehicles and cars powered by hydrogen and electricity. Sejong also plans to reduce traffic jams by using AI embedded in a traffic-management system. Moreover, Sejong is focusing on improving the delivery of health care. The city will adopt robotics and wearable devices in homes, public spaces, and medical facilities. For example, to detect medical emergencies such as injuries and illness, Sejong plans to use AI in homes.

Sejong is currently accommodating 300,000 people, who work for many newly migrated central-government ministries and institutions. Sejong Smart City also plans to attract diverse business and industries such as cultural and international co-operation, health care, welfare entities, and cutting-edge-technology industries.

Busan Smart City gives priority to robots and smart water management. The master plan is to adopt robots for multiple uses and to return cars through car-sharing. Robots can help provide automated valet services and detect parking violations, for example. Smart water management uses a water-reuse system and smart water meters for automated detection and drainage of pollutants.

 For Korea’s national balanced development strategies

Korea is considered one of the most successful stories of productivity catch-up across OECD member countries. However, as the country has urbanised, rural regions in Korea are facing demographic challenges brought by ageing and shrinking populations, in part driven by migration of young people to urban places. This has increased the pressure on the capital city region and has drained the vitality of rural places.

Korea’s national government has implemented a policy to promote a more balanced national development path. The goal is to foster growth more widely throughout the country in order to reduce pressure and rebalance the capital region and rural areas. This policy has been built upon a number of initiatives, such as the development of 10 “Innovation Cities” and the new multifunctional administrative city, Sejong. Korea is also one of leading countries in the smart-cities field, as represented by the two prominent pilot projects in Sejong and Busan.

According to the OECD studies, these initiatives are having an impact, with the pace of the country’s geographic concentration slowing and indeed contracting in recent years. Nevertheless, the impact of the policies more broadly on rural communities is still mixed and development remains highly uneven. For example, the population in rural regions close to large cities has grown, while it has declined in regions close to small- and medium-sized cities. Thus, Korea still needs to give priority to the national-government policy for balanced development throughout the country. Regional policy will play an important role in the coming years to help address this, as well as better prepare regions for the green transition, as highlighted by the OECD Regional Outlook 2021. To achieve this, decentralisation plans need to be supported by the right capacity, fiscal resources and incentives, as well as the right mechanisms to connect rural and urban areas.