The Korea Local Administration Review

Through the intergovernmental spending process, cities become the implementers of federal policies (Terman and Feiock, 2015). The study investigates the determinants of local economic development of cities experienced population decline in considering impacts of intergovernmental expenditures. The results demonstrate that cities that received more Special Accounts Funds for Balanced National Development at the federal level tended to increase economic growth after two years the funds were awarded. In the second year following the release of the local expenditures, increase in local economic growth occurred. Also, combination effects of the expenditures allocated to national and local governments stimulate consistently positive and significantly the level of economies after two years. Although federal spending may not be optimal for achieving the goal relevant to economic development, the empirical evidence suggests that the federal government expenditure led to effective performance in terms of promoting the economic development at the local level experienced population decline.