Regional Economy Isolated From Recovery
By Kim Jae-won
Staff Reporter
Amid growing signs of an economic recovery, the regional economy, or the economy outside of the capital area, has been excluded from the upward trend due to a lack of money supply and more corporate bankruptcies, according to a leading private think tank.
The trend has spawned concerns that economic polarization between the capital and non-capital areas has been intensifying, which many believe will become a future headache for the country’s economy.
In its report on the regional economy Sunday, the Hyundai Research Institute said that the dishonored bill ratio in the provincial areas reached 0.64 percent in 2008, five times more than that of the metro-Seoul area.
Newly established firms were also concentrated in the capital area of Seoul, Incheon and Gyeonggi Province. From January to September, as many as 60.7 percent of new startups were established in the region.
The number of financial firms’ branches has also dropped in the non-Seoul area for the last 11 years since 1997 when the 1997-98 Asian Financial Crisis hit the nation.
There were a total of 2,575 bank branches in 1997 in provincial areas, but the number dropped 40.1 percent to 1,543 in 2008. In contrast, those in the capital region increased 11.5 percent from 3,413 to 3,806 during the same period.
Analysts said the government should provide more policy support for the regional economy.
“Many bank branches here were shut down last year. Corporate bankruptcies in non-capital areas are also increasing (at a faster pace than in the capital region),” Ahn Soo-il, senior manager of Busan Bank, said.
“We hope governments and firms invest more in Busan, the financial hub of the southeast region. However, we do not have high expectations for this because the central government is only taking care of Seoul and Sejong City at the moment.”
The income disparity between the two areas doubled over the past decade, with the per capita gross regional domestic product (GRDP) Gini coefficient reaching 0.194 in 2008, compared with 0.085 in 1997.
The GRDP-based Gini index measures how evenly wealth is distributed across the region. Zero indicates perfect equality and one represents perfect inequality.
The think tank pointed out that the key culprit behind the sluggish regional economy was fewer job opportunities and poor education infrastructure.
For example, the number of jobs offered in Daegu and North Gyeongsang Province accounted for 9.7 percent of the total jobs in 2008, down from an average of 10 percent from 1995 and 2005.
As for the education system, only four national universities outside of the Seoul area saw their names listed among the top 30, and none of them were ranked in the top 10.
It is a big contrast to the 1980s, when Pusan National University and Kyungpook National University were ranked among the top 10 universities based on the results of the national entrance exam.
Analysts said that the central government should come up with measures to broaden the tax base for provincial governments, while encouraging local companies to make fresh investments in the regions by offering tax incentives.
Regional taxes in the U.S., Germany and Japan accounted for 48.6 percent, 45.4 percent, and 40 percent of their total tax revenue, compared to Korea’s 17.4 percent.
“Regional governments of most advanced countries have more autonomy in taxation than Korea. We need to expand the tax base for regional governments,” the report said.