The Effects of Local Variables on Economic Growth in Korea, 2010-2017

지방정부 경제성장에 미치는 변수 영향력 분석

(Purpose) This study analyzes the effects of local variables on local economic growth in Korea from 2010 to 2017. In accomplishing the research goal, this study takes two methodological steps. The first is to evaluate the relative effects of total local factors on economic growth compared with those of external factors such as national and regional conditions that are far beyond the control of local governments. As the effects of local factors are proved to be meaningful, we then proceed to the second step of evaluating the specific effects of some local variables on economic growth. (Design/methodology/approach) This study utilizes the GRDP of all 226 second-tier local governments as the index of their economic growth. In the first step of time series analysis, this study applies the variance components analysis methodology to estimate the relative effects of the total local factors on economic growth. In the second step, the simultaneous effects between key endogenous variables in the model compel this study to utilize a two-stage least-squares regression analysis. Limited to a one-shot cross sectional analysis, the simultaneous equations model estimates the effects of each specific local variable on economic growth. (Findings) Results clearly indicate that the total effects of local factors are overwhelming the external conditions for economic growth. During the whole period of analysis, the local factors explain more than 85% of local economic growth. Among the effects of each variables, some variables representing the budgetary, demographic, industrial, and social characteristics of locality turn out to be statistically significant. (Research implications or Originality) The results of the variance components analysis propose that local governments need to take more active policy initiatives to promote economic growth. The results of the two-stage least-squares procedure, however, reveal that there are no practical and effective local policy options for economic growth in the short-run. Within the limits of weak policy effects and high stability among local governments in the competition for economic growth, some combined local policy options still may matter in the long-run.