Industrial Development And Regional Inequality: Theory And The Korean Economy

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This dissertation examines industrial development from regional perspectives. It is composed of three parts: spatial adaptation of the Murphy, Shleifer, and Vishny (MSV) Model, application of the model to North Korea's Kaesong Industrial Complex, and an analysis of regional inequality of South Korea. Chapter 1 uses a combination of methods from economic development and economic geography. Departing from the MSV Model that views the poverty trap and industrialization as two Nash equilibria, this paper suggests the possibility of partial industrialization as equilibrium. In the beginning of an agglomeration, participating firms in a certain area may observe external economies with a decreasing fixed cost and rising productivity. However, once the number of firms exceeds a certain threshold of agglomeration capacity, the region will experience various congestion problems that may block further development and it will get stuck in a state of partial industrialization. Nevertheles, by Critical Minimum Effort, an economy may get out of this partial industrialization and reach the status of full industrialization as long as it overcomes congestion problems, as has been true for Mexico City, and Upper Silesia in Poland, and Seoul in Korea. Chapter 2 again uses the MSV Model to suggest a possibility for development in the Kaesong area of North Korea. More specifically, this paper deals with the effect of the Kaesong Industrial Complex, where South Korean technology and North Korean labor are combined. Using the MSV Model, this paper predicts that if there is a sustained effort to maintain the momentum of the Kaesong Industrial Complex, then this will have large spillover effects in the entire region, resulting in a big push which breaks the poverty trap and leads to full industrialization. These two chapters focus on the developments of certain regions in themselves. However, development of various regions can be viewed in comparative terms, in which case regional inequality becomes an important issue. Against this backdrop, Chapter 3 analyzes the pattern of inter-regional inequality by comparing the per capita GDPs of 15 South Korean provinces. Using Theil's T Index, this research analyzes increasing or decreasing trend of regional inequality in South Korea, and then, decomposes the country into two different categories (Honam and non-Honam, Gangwon and non-Gangwon, urban and rural) and looks into the inequalities between the groups. Also, in investigating possible factors that may affect regional inequality, this research finds that trade openness, physical capital, and human capital are the three main factors involved and that a certain coordinated investment is needed to minimize regional inequality of the country, without compromising on development.

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