The Korea Local Administration Review

This paper studies the effect of decentralization on regional economic growthin Korea by analyzing the productivity and spatial allocational efficiency ofpublic capital before and after the adoption of decentralized system. Based onthe fact that both political and social requirements for the balanced developmenthas been elevated since the beginning of decentralization system in the mid1990s, one might suspect that there has been efficiency loss in the publiccapital allocation. Through the estimation of regional production function, wefind the evidence that public capital has been over-provided after the mid1990s while the distortion in the spatial allocation of public capital wasaggravated comparing with the earlier period. We also find the evidence thatthe principle of the public investment policy turned from efficiency towardequity since the mid 1990s. These results show that with regard to the publicinvestment policy, the adoption of decentralized system would affect negativelyto the regional economic growth in Korea.
□ Keywords: decentralization, economic growth, public capital, spatial efficiency