THE JOURNAL OF THE KOREAN ECONOMY, Vol. 9, No. 2 (August 2008), 269-291 The Spatial Density of Production Activity and Productivity Differentials across Regions: A Case of Korea * Ky-hyang Yuhn ** · Yung Joon Lee *** · Min-Hong Oh **** This study investigates the effects of the spatial density of production activity on labor productivity and total factor productivity in Korean manufacturing. A theoretical model that directly relates productivity growth to the spatial density of production activity is developed. The empirical results show that a higher density of production activity would lead to an increase in productivity in four regions (Gwangju, Gyeongsangbuk-do, Chungcheongnam-do, and Gyeonggi-do) out of 15 regions. Our empirical analysis further suggests that any increase in the density of production activity in the metropolitan cities (except for Gwangju) could lead to a decrease in productivity. It can be thus concluded that there is a potential for Korean firms to increase productivity by readjusting the density of production activity across regions. JEL Classification: R12, R30 Keywords: spatial density, urban economics, new economic geography, localization, globalization, labor productivity, agglomeration effect * Received November 30, 2007. Accepted August 7, 2008. The authors are grateful to the Asian Institute for Regional Innovation at Pusan National University for the financial support. The authors are also thankful to three anonymous referees for the valuable comments and suggestions which have significantly improved this paper. ** Professor, Department of Economics, Florida Atlantic University, U.S.A. *** Professor, Department of Economics, Pusan National University, Korea. **** Author for Correspondence, Research Fellow, Korea Employment Information Service, 77-11, Mullae-dong 3-ga, Yeongdeungpo-gu, Seoul, 150-093, Korea, Tel: 82-2-2629- 7266, Fax: 82-2-2629-7279, Email: mhoh7266@work.go.kr