The Spatial Density of Production Activity and Productivity Differentials across Regions:

This study investigates the effects of the spatial density of production activity on labor productivity and total factor productivity in Korean manufacturing. A theoretical model that directly relates productivity growth to the spatial density of production activity is developed. The empirical results show that a higher density of production activity would lead to an increase in productivity in four regions (Gwangju, Gyeongsangbuk-do, Chungcheongnam-do, and Gyeonggi-do) out of 15 regions. Our empirical analysis further suggests that any increase in the density of production activity in the metropolitan cities (except for Gwangju) could lead to a decrease in productivity. It can be thus concluded that there is a potential for Korean firms to increase productivity by readjusting the density of production activity across regions. JEL Classification: R12, R3