The impact of the innovation city project on the local economy: Evidence from Korean Innovation City Project from 2012 to 2014

Abstract

This study employs a difference-in-differences approach to investigate the impact of the Korean Innovation City Project (KICP) on employment and productivity. KICP is a place-based policy that involved relocating public institutions and providing economic incentives to attract businesses. Our findings show that newly established businesses experienced positive employment effects mainly in the nontradable sector, but temporary negative productivity effects in the tradable sector. We also identified significant positive spillover effects on productivity for incumbent businesses. Moreover, our results suggest that the effectiveness of place-based policies should consider sectoral heterogeneity, between-firm spillover, and lasting effects.