Making Innovation Cities Regional Hubs: Lessons from the Effects of Public Institution Relocation

Seungmin Baek
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Seungmin Baek: Korea Institute for Industrial Economics and Trade

No 224, i-KIET Issues and Analysis from Korea Institute for Industrial Economics and Trade

Abstract: This paper warns that building innovation cities and relocating public institutions risk delivering no more than a temporary boost to regional economies. In the mid-2010s, when relocations were at their peak, growth in the share of the population living in the Seoul Capital Area (SCA) slowed temporarily, but population inflows from the SCA to the innovation cities have effectively vanished after 2017.

The innovation cities began losing population on net in 2023, and from 2025 even inflows from within their own regions turned into net outflows. The first phase of public institution relocation did increase population and employment in the innovation cities, but its spillover effects were limited in both size and reach. Relocation mainly raised service-sector employment in the host areas, and its effects fell short of expectations, with spillovers concentrated within about ten kilometers (km) of the innovation cities.

In particular, the persistent net outflow of people moving for work after relocation was completed points to a shortage of firms offering good jobs in the innovation cities. The paper argues that developing the innovation cities requires a selective, concentrated approach to relocating public institutions, together with an effective long-term hub strategy that turns the cities’ existing assets into agglomeration economies.

Relocations should be concentrated in areas with good access to the infrastructure of metropolitan and other large cities, so as to magnify the spillovers and build hub cities capable of drawing population away from the SCA. Because lasting productivity gains depend on creating agglomeration economies, industrial policy tied to the physical and human infrastructure of the innovation cities should be used to stimulate production in the cities and their surrounding areas. Finally, making innovation city policy more effective and sustainable calls for a governance framework that encourages cooperation among ministries and between the central and local governments.

Keywords: innovation cities; public institution relocation; hub cities; agglomeration economies; spillover effects; Seoul Capital Area; SCA; balanced regional development (search for similar items in EconPapers)
JEL-codes: R11 R12 R23 R58 (search for similar items in EconPapers)
Date: 2026-08-07
New Economics Papers: this item is included in nep-sbm and nep-uep
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Published as i-KIET Issues & Analysis, No. 224

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