Optimal Urban Population Size: National vs Local Economic Efficiency

Abstract

This paper explores whether the population size of the Seoul Metropolitan Area (SMA) in Korea is efficient in terms of the national economy. To undertake this analysis, a recursively dynamic interregional computable general equilibrium (ICGE) model with a population module is developed. In this model, the explicit costs and benefits of population growth are estimated by using the industrial value added and consumer price inflation functions for each region. The counter-factual analysis shows that national population decentralisation away from the SMA is desirable for Korea’s economic growth. Korea’s GDP is estimated to be maximised when the SMA’s national population share is at 39 per cent in the short term and 35 per cent in the long term. However, the SMA government is likely to have incentive to maintain its population at around 40 per cent of the national population, where per capita income at the regional, not national, level is maximised.