A DSGE Model for Shiniking Cities in Korea

Abstract

The goal of this paper is to develop a dynamic stochastic general equilibrium model for declining urban cities in Korea. The need for the DSGE model analysis to account for shrinking citie in Korea can be justified for the following two reasons. First, rises and falls of individual cities reflect multi-lateral interactions of different cities in Korea. Second, both idiosyncratic factors of individual cities and macroeconomic factors play important roles in the determination of the population distribution across different cities in Korea. It is shown that the deepening of shrinkage of small Korean cities can arise during the transition period toward the long-term steady state with a low rate of economic growth.