Economic Forces Underlying Urban Decentralization Trends: A Structural Model for Density Gradients Applied to Korea

With the rapid pace of urbanization the structure of cities in developing countries is subjected to the very strong pressures of rapidly increasing population, rising incomes, and shifting factor prices. The standard procedure to document shifts in the structure of cities has been the use of density gradients. There is a quasi-universal tendency towards decentralization and the flattening of population-density gradients in all cities of the world. The shifting of density gradients is of great empirical importance to policymakers and we need to know more on how various economic and demographic forces operate to yield decentralization. Using a unique set of structural estimates for the housing and residential-land markets in Korea, this paper shows how an estimable structural model can be used to explore the specific economic forces affecting the shape of density gradients of Korean cities. Crucial estimates of the elasticity of substitution for housing in various Korean cities are presented. The indirect estimates of the shifts in the density gradients derived from the structural model are compared with the trends yielded by directly estimated density gradients. The implications of the analysis for our understanding of density gradients are drawn.