[Namhoon Kwon, president of the Korea Institute for Industrial Economics and Trade(KIET)]
Hello, everyone.
Today, we'll be introducing
one of our institute's most outstanding research reports.
The report we'll be covering today is titled
“The Impacts of the Public Sector Relocation Program and Policy Directions for Regional Hub Cities.”
The government has pursued balanced regional development for years now. As part of these efforts, 
many public institutions have been relocated from the Seoul Capital Area (SCA) to Korea’s provincial regions. This report analyzes these initiatives.
Today, we're joined by Dr. Baek Seungmin,
who will walk us through the findings of the report.  
Welcome, Dr. Baek, and thank you for joining us.

[Dr. Seungmin Baek, an Associate Research Fellow at KIET]
Thank you for having me, President Kwon. 

I'd like to start by asking how this research came about.
The government began relocating public institutions out of Seoul quite a while back. 
What prompted you to take on this study now?

As you mentioned, the public sector relocation program
actually got underway in 2012.
Counting Sejong City, the so-called Innovation Cities, and individual relocation destinations,
around 60,000 public-sector jobs moved out of the Seoul Capital Area (SCA),
making the relocation program one of the government’s flagship balanced regional development policies.
The first phase of the public sector relocation wrapped up in 2019, so a fair amount of time has passed since then -
and yet, the debate over whether the Innovation Cities and the relocation program
actually brought us closer to balanced development is still very much alive.
When you look at the data, in fact, population and economic activity
have continued concentrating in the SCA ever since 2000,
with the exception of the few years in the 2010s when relocation was most active.
It was this concern that led us to design this study -
to take a fresh look at the ripple effects of the public sector relocation policy.

Looking through the report, I see you examined
how moving public institutions out of the SCA affects
regional population, employment, and other indicators.
The big things we care about are population and employment. So, what kind of changes did you find, if any? 

Well, for one, we found that the relocation of public institutions out of the SCA led to a substantial increase in population and employment
in the host regions that received those institutions -- the Innovation Cities.
And among the other findings of our analysis, 
another interesting thing we observed was that 
that the ripple effects of the relocation policy differ noticeably from industry to industry.
As public institutions relocated, we saw a clear rise in 
service-sector employment in host regions
but not in manufacturing employment.

That’s an interesting result. I wonder: why did the effect show up in services, but not in manufacturing?

I’ll explain how the effects concentrate in the service sector
through two specific channels.
The first channel has to do with differences in tradability across industries.
Basically, manufactured goods like electronics or machine parts
can be sold to anyone, regardless of how far away they live from the factory. 
Services, on the other hand - things like restaurant food and haircuts -
are much harder to sell to people that don’t live close to where the service is performed.
So when public institutions are relocated,
and a host region’s population, income, and consumption rise,
this difference in tradability
naturally concentrates spending on local, in-person services.
The second channel owes to a limitation inherent to the public sector itself.
Unlike private firms, public institutions produce public goods,
which aren't traded in the market to begin with,
and in producing them, these institutions have little incentive
to transact with other firms in the market.

I see. Another thing: This study didn't stop at the Innovation Cities themselves -
it also looked at how the economic effects spread to surrounding areas.
That’s what we usually call the “spillover effect.”
It looks like you analyzed that as well.
Well, as you’re aware, we're having this conversation in Sejong City right now.
The idea was that, as Sejong grew, nearby cities like Cheongju,
Gongju, and Daejeon would also reap benefits,
and grow along with Sejong. That’s the basic idea, I think.
Did your analysis actually pick up a spillover effect?

Yes, there was a spillover effect,
but it wasn't as large as we'd expected.
To be specific,
service-sector employment rose only slightly
within about 5 kilometers of the Innovation Cities,
and manufacturing employment showed only a marginal increase,
and only within roughly 10 to 15 kilometers.
The reason the spillover effect was smaller than expected
comes back to the same limitations I mentioned earlier -
the inherent limits of public institutions’ ability to generate broad ripple effects.

During the first round of the public institution relocation program,
public agencies were relocated out of the SCA to all kinds of places across the country.
I'd imagine the effects were stronger in some places than others -
I mean, it seems likely that that’s how it played out.
But what did your analysis actually say about how the outcomes differed by region?

To sum up the simulation results, the effects were quite heterogeneous.
Broadly speaking, the more populous a receiving region already was,
the larger the population gain it was expected to see. 
And once we factored in accessibility to major cities,
the effects diverged clearly by industry.
For manufacturing, employment gains were largest
when institutions moved to mid-sized cities of 300,000 or more
that were close to major cities.
Conversely, when relocation went to smaller cities
far from major cities,
service-sector employment was expected to show a clear increase instead.

Well, taking in your findings, they seem to carry a lot of implications.
And this study couldn’t come at a better time, as there's been a lot of talk recently about a second round of public sector relocation.
That makes your findings especially useful -
for this second round of relocations.
So, in light of these findings, what approach would you recommend?

First, economies of scale come into play in public sector relocation -
meaning that the more people who relocate, the larger the effect tends to be.
So concentrating relocations 
is one effective way to maximize their impact.
Second, conventional theories of urban growth tell us
that having industries that produce tradable goods - products that can be exported beyond the local market -
matters a great deal for a city's long-term growth.
Based on our findings, then,
I'd suggest that relocating to areas with very strong access to metropolitan infrastructure
and are moderately large cities in their own right
would be advantageous for building hub cities
by fostering the growth of tradable-goods industries such as manufacturing.

That said, I do want to add one caveat: the direct effect of public sector relocation
is bound to fade over time, no matter what.
So if the Innovation Cities are to grow, as originally intended,
into the regional-scale hub cities that can drive development across their wider region,
then, important as public sector relocation is to that growth,
it's even more important to design policies that amplify that effect and help prolong it.

All right, so what kinds of policies would you suggest? Just for example.

Above all, I think we need to build on the strengths the Innovation Cities already have.
To start, they're characterized by a high concentration of public institutions,
which gives them real potential to generate what's known as agglomeration economies -
the economic benefits that arise when firms and people cluster together.
I think that potential is considerable.
On top of that, compared to their surrounding areas,
Innovation Cities are newer, planned towns, and in general better places to live.
I think we should make good use of these strengths
and focus policy efforts on building agglomeration effects
over the long run.
For instance, compared to surrounding areas, Innovation Cities
are relatively well positioned to attract firms
or institutions with a higher share of skilled workers.
One option would be to help these institutions and firms cluster
within or around the Innovation Cities,
for example by offering them additional incentives.

Through sustained, long-term investment in infrastructure,
if we can narrow the livability gap between the SCA and Innovation Cities to some degree,
then population growth and firm inflows
could raise urban productivity, which would in turn drive further population growth -
and that virtuous cycle is what we'd expect to see.

And finally, for these policies
to work as intended, governance matters a great deal.
Direct support from the central government is certainly important,
but in the end, it's local governments that have to design and lead the Innovation Cities going forward, and
so their attention and investment really matter.

Thanks. So, to sum up what we've discussed today,
moving public institutions out of the SCA 
has clearly succeeded in boosting regional population and employment.
But that effect fades over time,
and in some sense, falls short of some of original goals of the balanced development policy. 
So that's one aspect we need to look at more closely.
And on how to turn this initial boost into sustained growth,
you've walked us through the range of factors we need to consider.

As the second round of public sector relocation is now underway,
attention shouldn't be limited to simply dividing up institutions
or deciding where to send them -
we need to analyze how to turn each region
into a genuinely sustainable growth hub.
I expect Dr. Baek's report to make a real contribution to that process.
Thank you again to Dr. Baek Seungmin
for taking the time to join us today.

Thank you for having me.

Thank you as well to everyone who joined us.
Next time, we'll be back with more in-depth, fascinating research.
Thank you.