REGIONAL INCOME CONVERGENCE AND DETERMINANTS OF TOTAL FACTOR PRODUCTIVITY IN MANUFACTURING AND SERVICE SECTORS: THE CASE OF KOREA

This study analyzes the labor productivity of Korea's manufacturing and service sectors, which have considerable influence on gross regional domestic product, through a panel regression analysis to examine absolute and conditional convergence. According to the results, the null hypotheses about absolute and conditional convergence for both sectors were rejected, verifying the productivity convergence of the country's manufacturing and service sectors. The results for determinants in the manufacturing sector indicate that there exist significant effects of government investment and regional capital accumulation on differences across regions and the convergence speed at the regional level. More specifically, high levels of manufacturing productivity are shown in Ulsan, Gyeonggi, and Gyeongbuk, where capital-intensive industries such as shipbuilding, automobiles, semiconductors, and steel are heavily concentrated, whereas low levels are observed in areas featuring labor-intensive production structures, including Gangwon and Jeonbuk, among others. On the other hand, in the case of location quotients reflecting regional fixed capital formation and the development of the service sector, the total factor productivity of the sector increases, but the sector is influenced more by pre-formed commercial supremacy as well as by the amount of internal capital for regions at the center of low-value-added industries.