This study develops an index measuring and ranking the investment climate of 16 areas in Korea in 2004. The index accounts for both qualitative data from company surveys and quantitative data from public information regarding the investment climate of the areas under study. The main results of the study are as follows.

First, Seoul was ranked first with respect the investment climate index, and was followed by Daejon and then Gyeonggi-do. Second, investment climate differed widely across cities. Seoul metropolitan area had much better investment conditions compared to other area. Third, in general, basic investment resources and infrastructure influence the index greatly, while information and technology environment and regional policy were less important. Forth, basic investment resources and regional government policy had larger influence on non- metropolitan area’s investment climate index compared to metropolitan cities.

Given the findings of this paper, the following policy recommen- dations are suggested: First, to improve the investment environment, more access to finance and banking and the mitigation of financial restraints are necessary. To encourage corporate investments, management- labor relations should be stabilizedand hiring of skilled labor facilitated. To attract skilled labor, the regional government should consider improving hospitals, schools, and other basic requirements. The price of land, especially for the building of factory plants, should be lowered. Second, regional governments should attract investment by adopting corporate-friendly policy. Currently, only a few provincial governments are providing special incentive packages to attract foreign as well as domestic investors. There is need for provinces to engage in policy competition to attract investments through increased autonomy from central government. Third, local governments should focus on creating investment that is appropriate to its regional characteristics. The current national balanced growth policy and innovation-clustering strategy does not take into account differences in regional investment characteristics and has therefore been unrealistic.