For Local Investment, Competitiveness Should Matter More Than Politics

Ministry of Trade, Industry and Energy Announces More Aggressive Support the Farther a Region Is from the Seoul Metropolitan Area, but the Scale of Support Alone Has Limits in Offsetting Location Competitiveness / Stable Power Supply, Logistics Accessibility, and Better Education, Medical, Housing, and Cultural Infrastructure Bring Firms and Workers to Settle in the Regions / Policy Goal—Not to Hand Cash to Companies, but to Lower the Costs They Must Bear Outside the Capital Region

On July 6, the Ministry of Trade, Industry and Energy gave advance notice of a partial amendment to the “Standards for State Financial Support for Local Governments’ Attraction of Local Investment by Companies.” The amendment includes easing the obligation to maintain existing business sites and expanding subsidy eligibility to newly established affiliates with less than one year of operating history. In February of this year, the government had already raised the ceiling on central government support from KRW 15 billion to KRW 30 billion per investment project, and from KRW 20 billion to KRW 30 billion per company.

At the time, the ministry also announced that it would provide more aggressive support the farther a region is from the Seoul metropolitan area. The government has continuously expanded both the scope and scale of support to promote local investment. However, whether increasing subsidy amounts can fundamentally change companies’ location choices is a separate question. This is because the policy need for balanced regional development does not necessarily align with the criteria companies actually use in deciding where to locate.

From 2004 to 2025, local investment promotion subsidies totaling about KRW 2.7439 trillion were provided to 1,596 companies. Over that period, the total investment by supported firms amounted to about KRW 36 trillion, and employment reached more than 81,000 jobs. However, these figures simply aggregate the total investment and employment of firms that received subsidies; they do not represent the net additional investment and employment that would not have occurred without the subsidies. If, after operating the program for more than 20 years, the government still needs to keep raising the support ceiling and expanding eligibility, it is worth examining whether there are limits to improving regional location competitiveness through support 규모 alone.

The performance of other regional industrial support programs also shows that it is difficult to strengthen regional competitiveness through fiscal and tax benefits alone. According to the National Assembly Budget Office, the budget for regional industrial clusters from 2021 to 2025 amounts to about KRW 6.5 trillion, yet the production and income gap between the capital region and non-capital regions has actually widened. In the regional innovation cluster development program as well, patent and paper output declined per KRW 1 billion in central government spending. Investment by foreign-invested firms in free economic zones, which offer tax breaks and site-related benefits, also fell from KRW 2.9 trillion in 2019 to KRW 2.2 trillion in 2022. These cases suggest that while fiscal support may be necessary, it cannot substitute for location conditions such as power, logistics, labor, and access to markets.

The government may provide greater support to regions farther from the Seoul metropolitan area based on policy needs such as balanced development and responding to regional decline. But companies choose locations based on production costs, labor availability, market access, power supply, logistics, and the regulatory environment—not policy consideration. Subsidies may temporarily offset differences in these conditions, but they do not improve the competitiveness of the location itself. The fact that local investment is not increasing as much as expected is not simply a signal that subsidies are insufficient. It requires a comprehensive look at logistics costs, labor recruitment costs, power supply constraints, market access, permit delays, and regulatory uncertainty that firms face in those regions. Expanding subsidies alone cannot reduce these structural costs.

Subsidies operate at the investment decision stage, but companies’ production activities continue over the long term. Even after the support period ends, companies must still secure electricity, transport products, and continuously recruit the workers they need. In the end, what determines whether firms remain in a region over the long term is not one-time support, but sustainable location conditions.

Policy priorities should focus on directly lowering the costs and uncertainty of locating in the regions. The power grid should be expanded to ensure a stable electricity supply, and logistics accessibility should be improved through roads, railways, and ports. Education, medical, housing, and cultural infrastructure should also be improved so that the workforce companies need can settle in the region. At the same time, overlapping permit requirements and uniform land-use regulations should be overhauled, and restrictions on the types of industries allowed into industrial complexes, along with various administrative procedures, should be rationalized. The level of regulation and the time required for approvals are also key factors in firms’ location decisions.

Companies move to places where costs and uncertainty are lower. The policy goal should not be to hand cash to companies, but to reduce the costs they must bear in the regions.

Hyun-jo Choi, Researcher, Center for Free Enterprise (CFE)

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Original title: 지방투자, 정치 논리보다 입지경쟁력 봐야 한다

Author: Hyun-jo Choi

Date: 2026-07-28

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=29325