This study investigates the magnitude of localization economies by analysing the relocation pattern of Korean establishments in the manufacturing sector. Relocation of establishments is identified by their move across the border of wards, counties, or cities and distinguished between beyond and within their workers' commuting distance. It seems that relocation beyond commuting distance costs more than that within commuting distance since the former includes additional costs related with searching for, hiring, and training new workers. Key findings of this paper show that external benefits from agglomeration are large enough to be recognized by manufacturers through relocation beyond the border of their workers' commuting area. When the own industry's share of employment in all manufacturing industries becomes doubled through relocation, the probability for establishments to relocate over a long distance across the boundary of their workers' commuting area rises by 17 per cent. The results for sub-samples divided by the age of establishments show that older establishments are more likely to relocate over a long distance to an area with disproportionate presence of establishments in the same industry. These results seem to fit product life cycle theory by Duranton and Puga. As the production process of the product becomes standardized, the firms producing that product tend to relocate to the specialized area where they can reduce the production costs by increasing dependence on the existing intermediate input suppliers, who are more likely to appear in a more specialized area.JEL classification: R30, R12, D21

The growth of an industry in a city has been explained by dynamic externality theories such as those by Marshall, Arrow and Romer, Porter, Jacobs and Storper. Each of these views describes a different mechanism by which the initial conditions for a particular industry in a city facilitate knowledge spillover extensive enough to promote productivity growth. This paper develops a model that distinguishes among these and applies it to Korean manufacturing industries. The empirical analysis concludes that productivity growth in Korea is more rapid when small firms from different industries compete, supporting theories by Jacobs and Storper. However, the impacts of specialisation and diversification vary substantially across major manufacturing industry sub-categories. Land use regulations such as greenbelt rates and excessive concentration control districts generally show significant negative effects on productivity growth.

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This study investigates the ex ante as well as ex post impact of a new subway line on housing values in Daegu, Korea where two lines already exist. Housing units are divided into two groups: treatment group versus comparison group based on the distance from the nearest station of the new line. Our results based on Hedonic models in difference-in-differences framework suggest that homes within 500 m from the nearest station of the new line can earn a premium of 99.7 thousand Korean Won (equivalent approximately to 96.3 US dollars) per square metre. However, such a premium from improved accessibility to public transit seems to appear mainly for the homes which are within 500 m from the new line and beyond 5 km from the nearest station of the existing lines. For the homes which are close to existing lines, proximity to the new line stations does not increase residents’ convenience remarkably because people are supposed to easily transfer between the new line and existing lines.

This paper revisits the concept of agglomeration economies by estimating the effects of localisation, urbanisation and local competition on labour productivity using establishment-level data in Korean manufacturing industries. It is found that, when an establishment locates in a more localised/specialised, more urbanised/diversified and more competitive area, its workers become more productive due to external benefits from agglomeration. Issues of self-selection bias and omitted variable bias are addressed by instrumenting the variables measuring localisation economies and controlling for the fixed effects of establishments/location and industries/year. However, the external effects from the spatial proximity of other establishments vary across the categories of industry type, age, size and legal form of organisation of establishments. Establishments in traditional heavy manufacturing industries receive more external benefits in a less diversified area, while those in transport equipment manufacturing industries enjoy the largest benefits from localisation. Externalities exist for establishments aged between 2 and 7 years, having at least 10 workers, being corporate and having multiplants (or not being headquarters). Establishments in relatively young industries rely more on diversified environments, while establishments in relatively old industries receive greater external benefits in the same industry cluster. This result supports the product life-cycle location theory of Duranton and Puga.