KIET: "Limited Effects from Dispersed Relocation of Public Institutions... Need for Hub-Oriented Strategy"

Report on "Ripple Effects of Relocating Public Institutions and Strategies for Establishing Innovation Cities as Regional Hubs"

Initial net population inflow from relocations shifts to net outflow from 2023

"Public institutions should be concentrated in areas with strong infrastructure accessibility in major cities to create hub cities"

As the government pushes forward with the second phase of relocating public institutions to regional areas, a state-run research institute has recommended that, in order to revitalize the economy and ensure sustainable growth, public institutions should be concentrated in regions with strong infrastructure accessibility, typically found in major cities.

On August 10, the Korea Institute for Industrial Economics and Trade (KIET) released a report entitled "Ripple Effects of the Relocation of Public Institutions and Strategies for Establishing Innovation Cities as Regional Hubs," which contains these recommendations.

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KIET first identified "resource dispersion" and a "lack of sustained growth drivers" as the key reasons why the construction of innovation cities and the previous rounds of public institution relocations have failed to adequately alleviate the centralization in the Seoul metropolitan area.

According to the report, when public institutions began to be moved en masse in the mid-2010s, there was a significant net inflow of population from the Seoul metropolitan area to innovation cities. However, this trend rapidly declined, and since 2023, net outflows have continued. Notably, even population inflows from within the same region to innovation cities reversed to net outflows beginning in 2025. The relocation of public institutions has primarily led to increased employment in the service sector, and the spatial impact has mostly been confined to within approximately a 10 km radius of the towns, townships, or districts hosting these innovation cities. As such, the industrial and spatial ripple effects of public institution relocation have been rather limited in scope.

Baek Seung-min, Associate Research Fellow at KIET, stated, "While the ripple effects from public institution relocation have been limited both industrially and spatially, dividing the institutions across ten innovation cities further diluted their impact. Infrastructure investment and public institution relocation have yet to translate into improved productivity." He emphasized, "A mid-to-long-term strategy is needed to concentrate public institutions in areas with strong infrastructure accessibility in major cities—thus creating hub cities that can genuinely disperse population from the Seoul metropolitan area—while also connecting the tangible and human resources of innovation cities through agglomeration economies."

In practice, most of the ripple effects from public institution relocation have been limited to increases in the local service industry in innovation cities. According to KIET's analysis of data from 2010 to 2024, these innovation cities experienced higher increases in employment and wages than both comparable local areas and even the Seoul metropolitan area. Such growth was especially notable in professional, scientific, and technical service sectors rather than in manufacturing, a trend KIET attributed primarily to the influence of the relocated public institutions.

However, there were distinct limits on both the scale and scope of the ripple effects. In regions receiving relocated public institutions, the majority of employment growth was found in the non-tradable sector, made up of goods and services consumed exclusively within the domestic market and difficult to buy or sell across borders. In contrast, job growth in the manufacturing sector appeared only after a time lag of about six to seven years and was relatively modest in scale.

Associate Research Fellow Baek stressed the need to link public institution relocation with the creation of hub cities at the national level. He noted, "The larger the scale of public institution relocation, the greater the per capita ripple effect—essentially an economy of scale. Concentrating public institutions in major cities with strong infrastructure accessibility, and thus forming hub cities, is an effective strategy for dispersing population from the Seoul metropolitan area." He added, "In particular, investments such as establishing special economic zones or industrial complexes near innovation cities, or strengthening transportation links between existing production spaces and innovation cities, will help attract companies and institutions that employ a high proportion of highly skilled professionals, who are sensitive to the quality of their living environment."

This content was produced with the assistance of AI translation services.