The Korea Local Administration Review

This paper is intended to analyze the spillover effect or externality of the regional product and the local government expenditure in South Korea by using local macro data from 1987 to 2007. As a result, this study observed various and significant spillover effects and external economies among the regions in South Korea. First, a greater economy have more spillover effects of local income rather than a smaller economy. Second, the spillover effects of local incomes and external effects of local public expenditures had a little relation with geographic close. Third, many cases of positive bi-directional(or feedback) causality between regional income variables were observed. Last, in this analysis, there were many cases that A region’s public expenditure was Grange-cause of B region’s G.R.D.P.. And there are various spill-over effects of regional incomes in South Korea also. That is, each region’s income may spill-over the other region, and every local government’s expenditure is able to affect the other region’s income. So, if each local government cooperate each other, then a growth of one region’s income should cause a growth of the other region’s income, and it should cause feedback(bi-directional) effects too.