From blind equity to selection, concentration

The “Demographic Migration and the Impact on the Regional Economy” report published recently by the Bank of Korea (BOK) deserves attention. After looking into the factors behind excessive capital concentration, the report provides a reflection on the strategies for balanced development by past governments. It concluded that Korea’s birth rate worsened and the growth potential of regional economies was damaged by the blind rush of young people to the capital region. It also stipulated the need to create hub cities outside the capital region.

The capital area makes up 12 percent of Korea’s land, but it is home to more than half of the population. Korea’s capital population density is the highest among 26 member countries of the OECD as of 2020. The BOK points to the active migration of young people as the biggest factor. Young people accounted for 78.5 percent of the increase in the capital region population from 2015 to 2021.

During the same time, the population of the non-capital region fell, largely due to the migration by the young. The shortage of young workers also makes it difficult for regional economies to draw companies. The concentration of production facilities around the capital has deepened since its output share topped 50 percent in 2015. The report raised concerns about the worsening brain drain from the non-capital region.

The policy for a balanced development of the country has been a top state agenda since 2003. But the population concentration has not eased. The special account for balanced development gives more subsidies to smaller areas, as the priority goes to underdeveloped regions. The report proposes a strategy to evenly allocate the budget to raise the policy effect and budgetary efficiency.

The BOK prescribes selection and concentration. Focusing its industry and infrastructure promotions to several hub cities outside the capital region could be effective in easing the population concentration around the capital region, the report said. For effective balanced development, relocations of the headquarters of public enterprises should go to these hub cities, the BOK pointed out.

Last week, the presidential committee on balanced growth also announced a five-year outline to develop even growth across the country by offering radical tax incentives to companies relocating to provincial regions and by creating four special zones created for equal opportunities, education and urban convergence. The national development plan over the last 20 years has failed because it focused too much on textbook fairness. The government and political circles must pay heed to the central bank’s advice to focus on selectiveness and concentration for the balanced development of the country.