Agglomeration and relocation: Manufacturing plant relocation in Korea

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.