Spatial Diffusion of Housing Prices and Relocation of the Administrative Capital in South Korea

We investigate the effect of relocation of administrative capital in South Korea on the spatial diffusion of housing prices using a long-run equilibrium time series analysis. To mitigate the population density in Seoul city and to improve the regional balance of economic development, South Korea began relocating its administrative capital to Sejong city, 120 km south of Seoul, in 2003 and recently finished the relocation in 2015. By applying the cointegration method of a vector autoregressive model to two periods, before and after the start of the relocation of the administrative capital in 2003, we find that the housing prices in Seoul prominently affected regional housing prices before relocation of the administrative capital, but did not affect regional housing prices in the period after 2003. Given the unique setting of relocation of the administrative capital in South Korea, the results will not only help policy makers evaluate the relocation of a focal region, but also provide insights to the spatial diffusion of housing prices.