Over the past 20 years, the concentration of population and economic power in the Seoul metropolitan area has intensified, with Seoul and Gyeonggi Province now accounting for more than half of the nation's population and economic capacity. According to a report titled 'The Impact of Public Institution Relocation and the Direction for Establishing Innovation Cities as Hubs,' released by the Korea Institute for Industrial Economics and Trade (KIET) on the 9th, the Capital Area's population share increased from 46% in 2000 to 51% in 2024. In particular, the proportion of the youth population (ages 19–34) in the Capital Area is projected to rise from 48.4% in 2001 to 56.0% by 2025. Labor force and value-added have also surpassed the 50% mark, becoming increasingly concentrated in the metropolitan region.

Attempts to Alleviate Overcrowding in the Capital Area and Their Temporary Effects To address overcrowding, the government promoted the relocation of public institutions to provincial areas, centered around Sejong City and 10 Innovation Cities nationwide, from 2012 to 2019. From 2014 to 2017, there was a significant net inflow of population from the Capital Area to the Innovation Cities, but the effect was temporary. Since 2023, a net outflow back to the Capital Area has continued, and it is projected that even within the same broader regions, population inflows will turn into net outflows after 2025. Notably, net population inflow for employment reasons declined rapidly after 2016 and shifted to a net outflow starting in 2022. Net inflows attributed to other factors, such as housing, family, education, and residential environment, have also shown a downward trend recently.

Positive Effects and Limitations of Employment and Wage Growth in Innovation Cities It is true that the relocation of public institutions has produced positive effects, such as increases in employment and wages in the Innovation Cities. An analysis of data from 2010 to 2024 revealed that employment and wage growth in regions where Innovation Cities are located outpaced those in similar non-metropolitan areas and even the Capital Area. Job creation and wage increases were particularly pronounced in the professional, scientific, and technical services sectors. However, these positive effects were concentrated within the Innovation Cities themselves, specifically in the non-tradable goods sector, including services. The increase in manufacturing employment was limited in scale, only appearing gradually six to seven years post-relocation. Manufacturing employment saw only a slight increase within a 10–15 km radius of the Innovation Cities, and the spillover effects on surrounding areas were negligible.

Limitations of Decentralization: Proposal for Transition to 'Hub Cities' and Industry-Academia-Research Clustering The report identified the 'dispersion of resources' and a 'lack of sustainable growth engines' as key limitations of the public institution relocation policy. By distributing public institutions across 10 Innovation Cities, the industrial and spatial impacts were diluted. The analysis noted that large-scale infrastructure investments and institutional relocations failed to translate into enhanced productivity or the creation of new growth engines. In fact, the production inducement coefficient of the public sector (1.41) is lower than that of the manufacturing (1.97) and service (1.70) sectors, indicating that relocating public institutions without attracting private enterprises has inherent limitations in job creation and economic growth. To overcome these challenges, the report proposed shifting away from a nationwide decentralized relocation model to a 'hub city' strategy. This approach would concentrate public institutions in metropolitan areas or large cities with high growth potential and excellent infrastructure and accessibility. The report also emphasized the operation of 'economies of scale,' noting that a larger relocation scale leads to a greater employment ripple effect per capita. According to previous research, each relocated public employee creates between 1 and 3.2 additional jobs, with the effect scaling up alongside the size of the relocation. Furthermore, to enhance the competitiveness of Innovation Cities, the report stressed the need for an 'industry-academia-research cluster' where companies, universities, and research institutions converge. It highlighted the necessity of leveraging the public institutions, highly skilled workforce, and urban infrastructure of Innovation Cities to attract corporate relocations and investments, thereby fostering a productive industrial ecosystem through the integration of industrial complexes and transportation networks. Corporate clustering can establish a virtuous cycle through the sharing of infrastructure such as power, water, and transportation, the efficient matching of job seekers with employment opportunities, and the revitalization of knowledge exchange.

Building Governance Essential for Policy Sustainability Establishing a cooperative framework between the central and local governments is also crucial to improving policy effectiveness and sustainability. The report suggested the creation of a pan-ministerial governance system capable of linking policies across various sectors, including industry, science and technology, and education. It also called for a structure that provides incentives to local governments based on the effectiveness of their investments in Innovation Cities. It added that synergy can only be achieved when software policies, such as corporate and university attraction and R&D investment support, are organically combined with physical infrastructure development. Baek Seung-min, an associate research fellow at KIET, noted that dispersing public institutions across 10 Innovation Cities weakened the overall ripple effect. He emphasized the need for a mid- to long-term strategy that involves concentrating public institution relocations in large cities with high infrastructure accessibility and connecting the physical and human resources of Innovation Cities into an agglomeration economy. Pointing out that Innovation City productivity has stagnated due to a lack of productive corporate inflows, he stated that policy directions must be revised to target fundamental productivity improvements rather than stopping at temporary regional revitalization.