Estimation on Regional Benefit and Optimal Level of Road Capital Stock

This paper measures the regional benefit of road investment in Korea, using the translog cost functions of the manufacturing industry for the four macroregions of Seoul Metropolitan Area, South-Eastern Area, South-Western Area, and Central Area. This paper shows that the road capital contributes significantly to the productivity of the manufacturing industry in the sense that the magnitude of the road capital stock elasticity of the production cost at the national level is –0.0124. The net social rate of return for all regions is higher than the yield of corporate bonds, which implies that the road capital stock is undersupplied in Korea. The ratio of optimal to actual road capital stock declined from 1986 to 1991, and then increased in all regions except Seoul Metropolitan Area since 1992. In order to generate economic efficiency and regional equality, it is necessary to increase road capital investment in the less developed regions of Korea, such as the South-Western Area and the Central Area.