Examining the Impact of Local Government Competencies on Regional Economic Revitalization: Does Social Trust Matter?

Abstract

This study aims to empirically analyze the direct effects of local government competencies on regional economic revitalization within the broader context of local communities and to investigate the moderating role of social trust in this relationship. Using panel data constructed from the 2012–2019 Seoul Survey provided by the Seoul Metropolitan Government and panel data from South Korea’s National Statistical Office, we employed feasible generalized least squares to account for potential heteroscedasticity and serial correlation. The results demonstrate that local government competencies positively impact regional economic vitality within local communities, with high levels of social trust among residents in these communities further strengthening this positive effect. This study highlights the theoretical importance of integrating resource-based and social capital theories to advance the field of urban regeneration and emphasizes the role of local communities in economic development. The findings suggest that even where local government competencies may be limited, a strong foundation of community social trust within local communities can drive economic revitalization. This underscores the need for central and local governments to actively enhance social trust within communities as a means of fostering sustainable economic growth.

1. Introduction

Local government competencies play a crucial role in addressing urban decline and promoting sustained growth and development in regional areas in South Korea [1,2]. Local governments are the entities closest to urban and regional issues within local communities, enabling the effective implementation of practical policies. These governments can understand the unique characteristics and needs of their regions more accurately and respond more promptly than central governments. This agility and proximity allow them to directly impact their communities [3]. Local government competencies, defined as the collective resources and competencies encompassing organization, personnel, and finance, are essential in effectively stimulating regional economies [4].

Despite recognizing the importance of local government competencies, local governance and urban development literature have increasingly emphasized the need for a more nuanced understanding of how local governments leverage their competencies [5]. For instance, recent studies underscore that local government competencies can influence various aspects of urban planning, service delivery, and resource allocation [6,7]. In particular, integrating insights from public administration, urban studies, and economic geography, these works suggest that local governments’ organizational capacities, fiscal management, and human resources should be examined holistically to understand their role in fostering robust, resilient local economies. This broader perspective encourages a comprehensive analysis of the interplay between different dimensions of competency and their cumulative impact on development outcomes.

Local governments operating at a high level of competency establish a critical foundation for economic revitalization and growth in local communities by implementing policies that create jobs, attract businesses, and expand social infrastructure, thus increasing population influx and economic vitality [4]. Conversely, if local government competencies are deemed lacking by local citizens, responses to urban decline may be insufficient, leading to deteriorations in public service quality and downward economic spirals [8]. Such challenges highlight the need to strengthen local government competencies, not only to counter immediate urban decline but also to foster long-term resilience. Previous research has underscored that effectively utilizing financial, human, and administrative resources is vital for local governments to navigate the complexities of regional decline, ensure accountability, and build public trust [5,9]. These studies also highlight that tailored competency-building initiatives, such as targeted training programs and intergovernmental cooperation, can better equip local governments to address context-specific economic challenges [10]. Accordingly, this study aims to build on these insights by exploring how enhanced local government competencies can drive regional economic revitalization, particularly in the face of evolving urban challenges.

This study is grounded in resource-based theory (RBT), which posits that an organization’s performance is determined by its resources and competencies, suggesting that local government competencies significantly influence policy effectiveness [11,12]. Resources encompass the physical, intellectual, and human assets that organizations leverage to enhance performance [13]. Insufficient local government competencies can reduce policy enforcement power, impacting public service quality and the business environment [14]. However, empirical studies specifically addressing the impact of local government competencies on regional economic revitalization are limited. While some scholars have applied RBT to the study of public organizations and governance structures [15,16], relatively few have examined how RBT principles translate into concrete, measurable improvements in local and regional economic conditions. By applying RBT to this context, the present study seeks to fill this gap and offer empirical evidence that connects theoretical constructs of competency with tangible economic outcomes, thereby extending the applicability of RBT in urban and regional development research.

This research focuses on the moderating effect of social capital, specifically social trust, as a contextual factor that could further enhance the positive effects of local government competencies on regional economic revitalization. Social trust represents the trust-based connections formed among social groups, embodying individuals’ beliefs about others they may not know personally [17]. Academic research on social trust spans various levels—from individual actions to organizational conduct [18]. Social trust has been found to facilitate interactions among community members and increase public support for policies, potentially enhancing the effectiveness of local economic revitalization policies [19]. Furthermore, social capital theory suggests that trust can act as a multiplier, amplifying the positive impacts of government-led initiatives by fostering cooperative behaviors and collective problem-solving [20,21]. While some studies have explored the moderating effects of social capital [22,23,24], to the best of our knowledge, empirical research on how social trust moderates the relationship between local government competencies and regional economic revitalization within local communities is scarce. By examining this moderating role of trust, the study not only clarifies how contextual social factors interact with government competencies but also identifies key conditions under which local economic revitalization efforts are most likely to succeed.

Using data from 2012 to 2019, this study empirically analyzes the relationships among local government competencies, regional economic revitalization, and social capital. The research scope is limited to the 25 districts of Seoul, which are among the most affected by urban decline in the country. Panel data were constructed from the Seoul Survey provided by the Seoul Open Data Plaza and national statistics sourced from the Korean Statistical Information Service. Empirical analysis was conducted using feasible generalized least squares (FGLS), including descriptive statistics, correlation analysis, and panel regression analysis.

2. Theoretical Background and Hypothesis Development

2.1. Local Government Competencies and Regional Economic Revitalization

Competency is defined as the sum of the abilities, skills, and knowledge necessary for an individual to successfully perform a specific job [25,26]. An individual’s competencies are essential elements enabling an organization to achieve its goals and secure competitiveness, directly impacting job performance effectiveness and efficiency [27,28]. Various studies have shown that individual competencies are positively correlated with job performance—leadership skills, problem-solving abilities, and interpersonal skills playing crucial roles in team performance and organizational goal achievement [27,29,30]. High-performance organizations enhance these competencies through systematic training and education programs, thereby improving productivity and satisfaction among members. Creative thinking and innovation competencies are significant factors for performance enhancement in innovation-driven companies. Leadership competencies foster collaboration and engagement among team members, thereby maximizing overall organizational performance [31,32]. Thus, individual competencies are key elements that directly influence organizational performance and provide a foundation for maximizing outcomes through competency enhancement.

Just as individual competencies play a crucial role in determining an organization’s competitive advantage and performance, the competencies of local governments function as essential resources and abilities that allow such governments to address various community issues and support economic revitalization [14]. Local government competencies can be defined as an amalgamation of human and physical resources that enables the effective implementation of policies tailored to regional characteristics and the establishment or management of organizations essential for achieving local development goals [33,34,35]. These competencies are critical factors in the practical execution of policies aimed at enhancing citizen welfare and revitalizing local economies [6]. Skilled human resources, adequate financial resources, and competent and responsible management within local governments are essential for solving regional issues and enhancing economic outcomes [36,37,38]. These elements individually increase the effectiveness of economic revitalization policies and allow local governments to adapt flexibly to changing economic environments and drive sustained growth [39,40].

The impact of local government competencies on the regional economy can be explained through RBT, which states that the unique resources an organization holds and its ability to strategically utilize them determine its competitive edge, and local governments can use these resources to maximize policy effectiveness and contributions to the community [41,42]. RBT underscores the necessity for local governments to strategically utilize human, financial, and ethical competencies to deliver differentiated outcomes to the community [43]. In particular, the human, financial, and ethical competencies possessed by local governments are crucial resources for community development, and their effective utilization can drive long-term economic revitalization and substantial regional development [39].

Human resource competencies include the expertise, problem-solving abilities, and leadership of local government officials, which play a pivotal role in quickly and effectively resolving community issues [40]. Skilled officials can thoroughly consider local characteristics and economic conditions to tailor and develop effective policies through the participation of experts in economic analysis or social welfare [44]. These officials organize teams and enhance cooperation with the community, thereby facilitating communication and incorporating public opinions during policy implementation. Additionally, they can collaborate with businesses, nonprofit organizations, and community leaders in public projects to effectively design and implement job creation or business support programs, positively impacting economic revitalization [39,40]. Thus, higher human resource competencies in local governments enhance the quality of policy design and execution, contributing to meeting the demands and economic needs of local residents.

Financial competency refers to the ability of local governments to secure and strategically allocate their budgets to facilitate successful policy implementation [39]. Governments with adequate financial resources can substantively support economic revitalization activities such as infrastructure expansion, job creation, and local business support, thereby laying the foundations for providing tangible benefits across regional economies [45]. For example, investing in road and transportation infrastructure can enhance a local business’s logistical efficiency, strengthen competitiveness, and improve local market accessibility, thus positively impacting economic activation [46]. Furthermore, financial competency includes the ability to invest in areas such as welfare program support, startup assistance, and small business subsidies, injecting short-term vitality into the local economy and strengthening the economic base for long-term sustainable growth [47]. Therefore, the financial competency of local governments is essential for simultaneously achieving economic revitalization and sustainability.

Ethical competency involves maintaining fairness and transparency in policy implementation and enabling responsible governance, which significantly impacts economic revitalization [48]. Local governments with high ethical competencies apply fair and consistent standards in their budget execution, project performance, and regulatory policies, ensuring equal opportunities for all residents and businesses [49]. Such fair governance encourages the participation of various stakeholders in economic activities without discrimination and provides a foundation for local businesses to grow in a transparent and trustworthy economic environment [50]. In particular, fair resource distribution based on ethical competencies prevents resource concentration in specific groups and ensures even distribution where needed, effectively advancing economic revitalization projects such as infrastructure expansion and job creation [51]. For example, if local governments maintain transparency in budget execution and fair project selection methods, economic revitalization projects are likely to lead to tangible results.

Indeed, Choi [15] empirically analyzed the impact of urban government competitiveness factors on regional economic growth, highlighting the importance of the human, financial, and institutional competencies of city governments as crucial elements for economic revitalization. Lobao and Kraybill [16] also emphasized the impact of local governments’ financial resources and expert personnel on economic development activities, suggesting that even in areas marked by high poverty, sufficient government competencies can activate the local economy. Kang [52] stressed the significant role of local governments’ financial support and human resources in the policy implementation process, particularly highlighting the efficient use of human and financial resources by local governments as contributing to long-term growth. These studies suggest the need for local governments to strategically utilize financial and human resources for regional economic development. Therefore, based on prior research and the current theoretical background, this study proposes the following hypothesis:

Hypothesis 1:

The higher the competencies of local governments, the greater the regional economic revitalization.

2.2. The Moderating Effect of Social Trust

Previous studies have suggested that the direct effects of local government policy on competency accumulation and economic revitalization through such competencies alone cannot fully explain all aspects of regional economic revitalization [53,54]. The correlation between local government competencies and regional economic revitalization can vary according to different environmental changes [39,40], thus raising the question: “Under what circumstances and conditions can local government competencies have a greater impact on regional economic revitalization?” Social capital has been highlighted as an answer to this question [55].

Social capital refers to social resources (e.g., trust, norms, and networks formed among individuals and groups) that facilitate mutual cooperation and information exchange, enabling the achievement of common goals [56,57]. The concept of social capital has been recognized since the late 1980s in various social sciences, such as public administration, sociology, and policy studies, as an alternative to solving pressing problems, and it has been defined and developed by various scholars [20]. Coleman [21] distinguished social capital from physical capital, viewing social capital as fostered in trust relationships among individuals and existing within structural relationships. Coleman argued that social capital enhances organizational productivity and contributes to achieving common goals, emphasizing personal-level social capital. Conversely, Putnam [58] explored social capital from the collective dimension of social organizations, defining it from the perspective of public interest and community prosperity and characterizing it as composed of trust, norms, networks, and civic engagement. Fukuyama [59] defined social capital as cooperation among community members to achieve communal goals, considering trust as the core measure of social capital. He further argued that trust accumulates within networks through reciprocal norms and cooperation [60]. Early studies highlighted that the monopolization of social capital could lead to inequalities similar to those caused by economic capital. Later research by Coleman and Putnam expanded on this conceptualization and explored the formation of social capital, its functional outcomes, and its socio-economic impacts [61].

Social capital, especially social trust, has been considered a moderating variable in the effectiveness of local government competencies [22,23,24]. Social trust plays a vital role in positively influencing regional economic growth and enabling the effective exercise of the human, financial, and ethical competencies of local governments [59,62]. In communities in which trust is well established, information transmission is smooth, and an environment conducive to cooperation among various stakeholders is created [63]. This enhances the impact of local government competencies on regional economic revitalization [60]. For example, for policies to be effective, public officials must use their expertise and secure the trust and cooperation of local residents. The successful management of financial resources and ethical standards in policy implementation is likelier to occur when supported by community trust [59].

According to transaction cost theory, the higher the trust among parties in economic transactions, the lower the various costs involved, thereby increasing the efficiency of economic activities [64,65]. Trust reduces additional transaction costs arising in processes such as contract writing, information exchange, and supervision, naturally inducing cooperation among participants [66]. This mitigates uncertainty in transactions, facilitates rapid and efficient decision-making, and supports smooth interactions between local governments and community members [67].

In local governments, high community trust reduces administrative and financial friction during policy implementation, smoothens the flow of information between governments and residents, and significantly enhances the efficiency and effectiveness of policy execution [19,57]. Social trust greatly enhances the effects of key local government competencies, such as human, financial, and ethical competencies [61,63]. In communities with high trust, local governments’ human competencies gain additional support from residents during policy design and execution, allowing for the full utilization of public officials’ expertise [68]. Moreover, when financial competencies are based on trust, fair and efficient budget allocation becomes possible, and residents actively participate in the process, making more effective use of local government financial resources [20,67]. Finally, high levels of ethical competency allow policies to be implemented based on fairness and responsibility in environments with high social trust, strengthening the transparency of local governments and trust relationships among residents and continually positively impacting economic revitalization [21].

Recent studies, such as that by Kim and Moon [69], have verified the direct effects of social trust and networks on the regional economy and the moderating effects of industrial diversity on the relationship between industrial diversity and the regional economy. The results showed that the positive relationship between industrial diversity and the regional economy strengthens with higher network levels, indicating a need for local governments to support the construction of social networks within the region. Additionally, Cheon and Kim [70] empirically analyzed the impact of creative capital, defined as core, specialized, and cultural creation layers, on regional economic growth and the moderating effect of social capital in Korea’s 162 cities and counties. The study found that the positive effect of creative capital on regional economic growth increases according to the strengthening moderating effect of the preferred social capital (diversity norms) of the creative layer, arguing that social capital plays a crucial role in balanced local development.

Based on these prior studies, there is a significant possibility that social trust could act as a moderating effect between local government competencies and regional economic revitalization. This significant moderating effect of trust implies that the effect of local government competencies on regional economic revitalization can vary depending on the level of social capital, particularly trust. For example, in communities in which trust among families, friends, neighbors, and public institutions is well established, trust enhances policy execution and administrative efficiency, promotes information sharing and cooperation, and consequently reduces transaction costs, speeds up policy implementation, and strengthens the positive impact of local government competencies on regional economic revitalization. Based on this theoretical background and prior research, this study sets the following hypothesis:

Hypothesis 2:

The higher the level of social trust, the stronger the positive relationship between local government competencies and regional economic revitalization.

3. Model Specification

3.1. Local Analytical Framework of the Study

This research aims to analyze the direct impact of local government competencies on regional economic revitalization and to verify the moderating effect of social trust in this relationship. To this end, this study examines the influence of local government competencies on regional economic revitalization across the 25 districts of Seoul, based on prior research, and specifically explores the moderating effect of social trust within this relationship (see Figure 1).

The study measures the dependent variable, regional economic revitalization, by taking into account the number of employees per thousand people, the number of employees per business, and the rate of new business startups. This measurement utilizes data from the National Statistical Office spanning eight years from 2012 to 2019. The independent variable is local government competencies, and it is measured by assessing human, financial, and ethical competencies at the district level. Additionally, the moderating variable, social trust, is based on trust levels toward family, friends, neighbors, and public institutions using data from the Seoul Survey collected from 2012 to 2019. To enhance the reliability of the analysis, we set control variables such as total population, the number of cultural facilities per thousand populations, the proportion of aged housing (30 years and older), the ratio of the social welfare budget, and the per capita park area ratio. Through this study design, the work systematically verifies the impact of local government competencies and social trust on regional economic revitalization.

3.2. Sample and Data Collection

This study set the 25 basic autonomy districts of Seoul at the district (gu) level as the unit of analysis. To test the hypotheses, we constructed panel data by combining Seoul Survey data spanning eight years from 2012 to 2019 with public data for each of Seoul’s 25 districts, sourced from the Seoul Open Data Plaza. Since 2003, Seoul has conducted its annual Seoul Survey with approximately 42,000 to 49,000 residents to understand demographic and sociological characteristics and lifestyles. The city considers the results to constitute foundational data for urban policy formulation. As a secondary dataset, the Seoul Survey was collected through stratified cluster sampling, with approximately 40,000 samples collected each year from 2012 to 2019.

However, as the Seoul Survey outputs cross-sectional data with varying samples each year, it does not allow for the direct tracking of changes in social capital over time due to the lack of a longitudinal sample. To address this limitation and create a panel dataset, this study applied weights by district and aggregated respondents’ measurements on each item to calculate mean values. The Seoul Survey provides post-stratification weights based on gender (male, female) and age groups (15–19, 20–29, 30–39, 40–49, 50–59, and 60+), employing iterative proportional weighting to adjust for sample characteristics. These weights enhance sample representativeness and minimize bias, enabling the calculation of district-level means for unbiased estimates.

We then generated panel data with each of the 25 districts as units of analysis per year, ultimately converting the final unit of analysis from individual citizens to Seoul’s districts.

3.3. Measures

The independent variables (human competency, financial competency, and ethical competency) and the dependent variable (local economic revitalization) in this study were measured through the following calculations.

With a focus on the 25 autonomous districts (gu) of Seoul, this study categorizes local government competency into human competency, financial competency, and ethical competency, which are standardized and averaged for analysis. First, human competency is measured by the number of public officials relative to the population. According to resource-based theory, human capital is critical for sustained competitive advantage and organizational performance [11]. While some studies have argued that counting public officials alone may not fully capture human competency, it remains a widely accepted and practical metric [71]. Increasing the number of public officials, especially those with expertise in the local economy, is likely to contribute to economic growth. Additionally, the number of civil complaints processed per public official reflects a local government’s efficiency in handling public requests and is a vital indicator of human competency within local governments [72,73].

Financial competency is measured using the fiscal competency index, fiscal independence rate, and fiscal autonomy rate. The fiscal competency index indicates the degree to which baseline fiscal demands are met and assesses a local government’s ability to fund administrative activities through its own revenue sources. The fiscal independence rate represents the proportion of local taxes and non-tax revenues in total revenue, with a higher rate indicating stronger self-funding competencies. The fiscal autonomy rate refers to the proportion of financial resources that local governments can use independently; higher rates indicate greater autonomy in terms of financial management.

Lastly, ethical competency is assessed through external and internal integrity ratings. This study utilizes the integrity ratings published by the Anti-Corruption and Civil Rights Commission, which defines ethical competency as the degree to which public officials perform their duties transparently and without corruption. External integrity reflects the extent to which public officials perform duties for citizens without soliciting or engaging in corrupt activities, while internal integrity is the extent to which internal processes are conducted fairly and without corruption. The external integrity rating includes measures of perceived and experienced corruption, while the internal integrity rating evaluates the culture of integrity and ethical standards in public service. Based on these data, the Anti-Corruption and Civil Rights Commission assigns integrity grades (from Grade 1 to Grade 5) by agency type annually. This study quantifies the ethical competency of Seoul’s districts using integrity ratings for 2012 and 2019.

The unit of analysis is each district of Seoul, and since the variables differ in terms of size and district, a normalization process was applied to eliminate unit differences (Choi, 2018). This approach is based on the calculation method proposed by Choi [15], who measured city government competitiveness indicators. First, using the maximum and minimum values, each variable was normalized to a scale of 0 to 1, enabling comparative analyses across regions and time periods. For example, ${Score}_{abc}$ represents the score for subindicator c under competency b in district a of Seoul (see Formula (1)). The normalized scores for each domain are then summed and divided by the number of sub-indicators in each competency. In other words, each local government’s human, financial, and ethical competency is represented by the arithmetic mean of the subindicator scores. Formula (1): Normalization of local government competencies

$${Score}_{abc}={\displaystyle \frac{{actual value}_{abc}-{minimum value}_{abc}}{{maximum value}_{abc}-{minimum value}_{abc}}}$$

(1)

Second, the local government competency of district a in Seoul is expressed as the arithmetic mean of human, financial, and ethical competencies (see Formula (2)). This composite local government competency score ranges between 0 and 1, with values closer to 0 indicating lower competency and values closer to 1 indicating higher competency. Formula (2): Arithmetic mean of local government competencies

$${INDEX}_{ij}={\displaystyle \frac{1}{c_n}}\sum _{c_1}^{c_n}{Score}_{abc}$$

(2)

Finally, the local government competency for a district $i$ is represented by the geometric mean of its human, financial, and ethical competency (see Formula (3)). In contrast to the arithmetic mean, which can create a downward standardization effect—where weaker capacities offset stronger ones—the geometric mean minimizes such interference among the different areas, thereby reducing the limitations posed by substitutability. Furthermore, when one capacity area fluctuates, it directly influences the government competency indicator rather than being counterbalanced by changes in other areas, making this approach especially advantageous. Formula (3): Geometric mean of local government competencies

$${\mathrm{L}\mathrm{o}\mathrm{c}\mathrm{a}\mathrm{l} \mathrm{g}\mathrm{o}\mathrm{v}\mathrm{e}\mathrm{r}\mathrm{n}\mathrm{m}\mathrm{e}\mathrm{n}\mathrm{t} \mathrm{c}\mathrm{o}\mathrm{m}\mathrm{p}\mathrm{e}\mathrm{t}\mathrm{e}\mathrm{n}\mathrm{c}\mathrm{y}}_i=\sqrt[3]{{INDEX}_{i1}\times {INDEX}_{i2}\times {INDEX}_{i3}}$$

(3)

Regional economic revitalization refers to a multidimensional process aimed at improving the economic conditions, sustainability, and resilience of a specific region [74,75]. This concept encompasses various aspects of economic performance, including employment generation, business activity, regional productivity, and fiscal sustainability. Regional economic revitalization highlights the importance of fostering an environment conducive to economic growth, supporting businesses, and enhancing the quality of life for residents through effective policies and resource allocation.

To measure the dependent variable, regional economic revitalization, this study adopts a multidimensional framework that includes various economic indicators to comprehensively assess the economic conditions and performance of a district. While traditional studies often use gross regional domestic product (GRDP) as a primary measure of production scale and expenditure levels [76,77], this study broadens the scope by emphasizing job-related and fiscal indicators, which provide a more nuanced understanding of local economic revitalization. Specifically, regional economic revitalization is operationalized through key indicators such as the number of employees per 1000 people, the number of employees per business establishment, the business establishment rate, property tax per capita, and GRDP per capita.

Each of these indicators plays a critical role in capturing the multidimensional nature of regional economic revitalization. First, the number of employees per 1000 people reflects the region’s employment capacity relative to its population size, serving as a measure of labor market vitality. Higher employment rates are directly associated with improved economic conditions, increased consumer spending, and community stability, making it a key indicator of economic health [39]. Second, the number of employees per business establishment assesses the efficiency and productivity of local businesses in generating employment. This indicator provides insight into the health of the regional business ecosystem and its ability to sustain economic growth through employment opportunities [39,78]. Districts with higher employment per establishment are often better equipped to support stable and resilient economic systems. Third, the business establishment rate measures the dynamism of the regional economy by tracking the rate of new business creation [79]. A higher business establishment rate signifies a vibrant entrepreneurial environment and economic diversification, both of which are critical for long-term economic resilience. This indicator reflects the region’s capacity to adapt to economic changes and foster innovation-driven growth. Fourth, property tax per capita represents the fiscal capacity of a district to support public services and infrastructure development [80]. Residents directly pay property tax to their district, which serves as a crucial economic indicator, reflecting local economic activities and asset values. Higher property tax revenues indicate robust economic activities, increased property values, and financial sustainability, enabling local governments to make strategic public investments. Regions with higher property tax per capita are often better positioned to enhance economic performance through improved infrastructure, public services, and targeted economic revitalization efforts. Finally, GRDP per capita captures the economic productivity of the region on a per-person basis. This indicator provides a comprehensive measure of the overall economic output and standard of living, directly linking regional production to the well-being of residents [81]. It highlights the region’s ability to create value and sustain economic growth over time.

By integrating these indicators, this study ensures a robust and multidimensional approach to evaluating regional economic revitalization. Each indicator contributes uniquely to understanding the region’s capacity to generate growth, sustain economic activities, and improve the quality of life for its residents, thereby justifying their inclusion as sub-indicators of the dependent variable.

To account for the relative differences in local economic revitalization among the 25 districts of Seoul, the standardization method proposed by Choi (2018) was applied, ensuring that the values fall within the range of 0 to 1.

The potential for social trust to act as a moderating variable is meaningful in this study, as accumulated trust within a region can enhance the positive relationship between local government competency and local economic revitalization by facilitating information sharing, cooperation, and the reduction in transaction costs [57,59]. To measure trust levels as a moderating variable, this study uses the responses to the Seoul Survey household questionnaire item: ’How much do you trust the following people or institutions? Please evaluate each item based on your opinion”. The trust categories include family, friends, neighbors, and public institutions (e.g., Seoul City Hall or district offices), with responses collected on a five-point Likert scale (1: Do not trust at all, 2: Do not trust much, 3: Neutral, 4: Trust somewhat, 5: Trust very much).

In addition to local government competency, securing demographic, social, cultural, and environmental factors within a region is essential for local economic revitalization. This study includes these factors as control variables, incorporating demographic and social factors as well as cultural, welfare, and environmental factors into the analysis model. For demographic and social factors, the total population and aging index of each of Seoul’s 25 districts were applied. The size of each district’s population and its proportion of elderly residents are closely linked to economic growth [82]. According to Glaeser and Gottlieb [83], regions with larger populations have larger industrial and market scales. Similarly, Mo [84] demonstrated a significant correlation between population sizes and economic growth in metropolitan areas. This suggests a virtuous cycle in which job creation and human capital accumulation occur as the industrial market expands.

Various studies have presented differing views on the economic impact of aging populations. Some have argued that an increase in the proportion of elderly in a population promotes investment and innovation in the healthcare industry, positively affecting regional economies [85]. Conversely, Maestas et al. [86] point out that an aging population may reduce workforce participation and increase the burden on social security, posing challenges to local government finances. Therefore, this study controls for the effects of population size and the aging index on the regional economy.

The study includes the number of cultural facilities per 1000 people, the proportion of the social welfare budget, and the per capita ratio of the park area as cultural, welfare, and environmental factors. Previous studies have suggested that cultural facilities, such as performance and exhibition venues, positively impact local economic revitalization [87] and that the size and proportion of the social welfare budget also contribute positively to GRDP [88]. Additionally, urban park areas have been shown to influence regional economic development [89], with regions that offer urban parks exhibiting higher income levels and land values compared to areas without parks [90]. By controlling for these variables, the study aims to more accurately analyze the effects of demographic, social, cultural, and environmental factors on local economic revitalization.

Table 1. Measurement indicators of variables.

Category	Variable		Subelements	Formula	Source
Dependent variable	Local economic revitalization		Number of employees per 1000 people	(Total number of employees in the district ÷ total district population) × 1000	National Statistical Portal
			Number of employees per business establishment	Total number of employees in the district ÷ total number of businesses in the distirict
			Business establishment rate	(Number of newly established businesses in the current year/number of existing businesses in the current year) × 100
			Property tax per capita	Property tax/total district population	Seoul Open Data Plaza
			GRDP per capita	GRDP/total district population
	Local government competencies	Human competency	Number of public officials per 1000 people	(Total number of public officials in the autonomous district/total population of the autonomous district) × 1000	National Statistical Portal
			Number of civil complaints handled per public official	Number of civil complaints processed/total number of public officials in the autonomous district	Seoul Open Data Plaza
		Financial competency	Fiscal competency index	Standard fiscal revenue/standard fiscal expenditure	National Statistical Portal
			Fiscal independence ratio	(Independent revenue/general account) × 100
			Fiscal autonomy ratio	([Independent revenue + autonomous financial resources]/general account) × 100
		Ethical competency	External integrity	Ranked 1 to 5 by autonomous district	Anti-Corruption and Civil Rights Commission
			Internal integrity	Ranked 1 to 5 by autonomous district
Moderating variable	Social trust		-	Level of trust in people or institutions (1–5 scale)	Seoul survey
Controls	Total population of the district		-	log(Total Population of the Autonomous District)	National Statistical Portal
	Number of cultural facilities per 1000 people		-	(Number of Cultural Facilities in the Autonomous District ÷ Total Population of the Autonomous District) × 1000
	Aging index		-	(Elderly population [aged 65 and above]/youth population [aged 0–14]) × 100
	Social welfare budget ratio		-	(Social welfare budget of the autonomous district/total budget of the autonomous district) × 100
	Park area per capita		-	Total park area (km2)/total district population of the autonomous district

displays the measurement indicators of variables.

4. Results

The descriptive statistics and correlations for the variables in this study are presented in

Table 2. Descriptive statistics and correlation analysis.

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
(1)	1
(2)	0.62 ***	1
(3)	−0.01	0.01	1
(4)	−0.31 ***	−0.24	0.02	1
(5)	0.36 ***	0.28 ***	−0.03	−0.69 ***	1
(6)	−0.56 ***	−0.53 ***	0.13 *	−0.67 ***	−0.63 ***	1
(7)	−0.05	−0.18 ***	0.03	−0.52 ***	0.44 ***	−0.12	1
(8)	−0.04	0.05	−0.01	−0.41 ***	0.71 ***	−0.31 ***	0.38 ***	1
Mean	0.42	0.20	3.14	12.86	0.05	46.72	116.71	0.17
S.D.	0.17	0.13	0.37	0.37	0.07	7.15	32.85	0.01
Minimum	0.00	0.00	2.27	11.81	0.01	25.21	58.5	0.01
Maximum	0.82	0.52	3.80	13.43	0.40	60.54	217.2	0.07

Note. * p < 0.1; *** p< 0.01; (1) = local economic revitalization; (2) = Local government competency; (3) = social trust; (4) = total population of the autonomous district; (5) = number of cultural facilities per 1000 people; (6) = aging index; (7) = social welfare budget ratio; (8) = park area per capita; S.D. = standard deviation.

. The standardized mean value of the dependent variable, local economic revitalization, is 0.31, indicating that the level of local economic revitalization (employees per 1000 residents, employees per establishment, and business startup rate) in Seoul’s districts is below average. The standardized mean value of the independent variable, local government competency, is 0.34 and is calculated by standardizing the mean and standard deviation of the variable. The mean value of the moderating variable, trust, is 3.14, which is slightly above the midpoint of 3.0.

An examination of the correlations among the variables reveals a significant positive correlation between the dependent variable, local economic revitalization, and the independent variable, local government competency (r = 0.62, p < 0.01). This suggests that higher local government competency is associated with increased levels of local economic revitalization. However, no significant correlations were found between the moderating variable, trust, and local economic revitalization.

The primary advantage of longitudinal data analysis is its ability to yield more precise estimates than cross-sectional or time-series approaches. Nevertheless, concerns persist regarding serial correlation and heteroskedasticity in the error terms. The Wooldridge test for autocorrelation produced an F-statistic of 5.22 (p < 0.05), confirming serial correlation, while the Breusch–Pagan test yielded a chi-square value of 4110.96 (p < 0.01), indicating heteroskedasticity. To address these issues, this study employed FGLS regression models featuring heteroskedastic errors and a first-order autoregressive correlation structure applied uniformly across all panels.

Furthermore, the introduction of an interaction term, combined with strong correlations among the variables, substantially increased the risk of multicollinearity. To mitigate this concern, the interaction term between inclusive management and diversity was mean-centered. Although initial analyses revealed severe multicollinearity, this mean-centering procedure reduced the average variance inflation factor (VIF) to below 2.47, ensuring that no single measure exceeded the commonly accepted threshold of 10.

The FGLS estimation results for the direct effect of local government competency on local economic revitalization and the moderating effect of trust are presented in

Table 3. FGLS results for the hypothesized relationships.

	Model 1		Model 2
	$\mathsf{\beta }$	S.E.	$\mathsf{\beta }$	S.E.
Total population of the district	−0.063 **	0.028	−0.063 **	0.028
Number of cultural facilities per 1000 people	1.541 ***	0.237	1.501 ***	0.155
Social welfare budget ratio	0.001	0.002	0.000	0.001
Aging index	0.000 ***	0.000	0.001 ***	0.000
Park area per capita	−4.946 ***	0.446	−4.953 ***	0.412
Social trust	0.001	0.004	−0.004	0.004
Local government competency	0.057 **	0.029	−0.056 **	0.030
Local government competency × social trust			0.099 **	0.043
Constant	0.917	0.354	0.929	0.345
Observations	198		198
Wald ${\chi }^2$	220.90 ***		272.88 ***

Note: ** p < 0.05; *** p < 0.01.

. First, the results of Model 1, which analyzes the direct effect of local government competency on local economic revitalization, indicate that local government competency (β = 0.057, p < 0.01) positively impacts local economic revitalization. Accordingly, hypothesis 3, which anticipates a positive relationship between local government competency and local economic revitalization, is statistically supported.

Model 2 presents the results of analyzing the moderating effect of trust in the relationship between local government competency and local economic revitalization. The analysis shows that when trust is high, the positive effect of local government competency on local economic revitalization is strengthened, providing statistical support for hypothesis 4 (β = 0.099, p < 0.05). A graph illustrating the moderating effect of trust is shown in Figure 2. This graph tests the slopes by dividing them into cases in which trust is one standard deviation above or below the mean. The results reveal that when trust is low (mean −1 standard deviation), the positive impact of local government competency on local economic revitalization weakens, whereas when trust is high (mean +1 standard deviation), the positive effect of local government competency on local economic revitalization is further strengthened, indicating the presence of a moderating effect.

5. Discussion

This study aims to analyze the impact of local government competencies on the economic revitalization of local communities and to examine the moderating effect of social capital. First, it explores how local government competencies influence local economic revitalization, which reflects a region’s economic resilience to urban decline. RBT is applied to assess how local government competencies can drive economic revitalization in the face of challenges such as low birth rates, aging populations, slow economic growth, and metropolitan concentration. RBT is also employed to empirically examine the moderating effect of social capital [11]. Two research questions guide the analysis: (1) How do human, financial, and ethical competencies of local governments in Seoul’s 25 districts affect local economic revitalization, measured by employees per 1000 residents, employees per establishment, and the business startup rate? (2) Does social capital, specifically resident trust, moderate the relationship between local government competencies and local economic revitalization?

To answer these research questions, we tested the direct effect of local government competency on local economic revitalization, as well as the moderating effect of social capital on the relationship between local government competency and local economic revitalization in Seoul’s 25 districts. First, the analysis found that local government competencies have a positive effect on local economic revitalization, supporting Hypothesis 1; this aligns with RBT [11,12]. Local government competency, defined in terms of financial, human, and ethical competencies, indicates that when governments possess sufficient competency in these areas, job creation across industries within the region can lead to increased income and expanded consumption, resulting in local economic revitalization [14]. These results suggest that local government competency should be considered an essential factor in promoting local economic revitalization [5]. These findings also confirm and extend previous empirical research that emphasizes the importance of local government competencies in fostering regional economic growth. For instance, Choi [15] highlights how human, financial, and institutional competencies of urban governments are crucial catalysts for economic revitalization, while Lobao and Kraybill [16] demonstrate that even in economically disadvantaged areas, robust financial resources and expert personnel within local governments can stimulate economic development activities. Kang [52] further underscores the significance of efficiently managing human and financial resources to facilitate long-term growth. By aligning with these studies, our results reinforce the notion that local government competencies are not only theoretically important but also empirically validated drivers of regional economic vitality.

Second, the analysis found that higher levels of social trust in the local community strengthen the positive impact of local government competencies on local economic revitalization, supporting Hypothesis 2. This result suggests that social trust moderates the impact of local government competency on local economic revitalization, highlighting the importance of both government competency and the situational condition of trust in revitalizing local economies [5]. Urban regeneration relies heavily on social capital, specifically trust, to overcome urban decline [20]. Competency closely relates to strengthening the autonomy of local governments in decentralization. Improved administrative competencies, financial independence and transparency, and the expansion of anti-corruption practices contribute to fiscal soundness, thereby facilitating communication with businesses and enabling local governments to create public and private sector jobs [91]. However, if local businesses distrust the competency and support of local governments, they may be reluctant to reluctant to engage in investment and hiring practices. Thus, even with the same level of local government competency, the impact on the local economy is further enhanced in areas with high trust compared to those with lower levels. These findings are consistent with previous research that underscores the importance of social trust and networks in strengthening local economies. For example, Kim and Moon [69] verified that social trust and networks not only exert direct effects on the regional economy but also enhance the positive relationship between industrial diversity and regional economic outcomes. Similarly, Cheon and Kim [70] demonstrated that the effect of creative capital on regional economic growth increases with the moderating influence of social capital. Taken together, these studies indicate that local governments should actively support the formation and maintenance of trust-based social networks and cultural capital to realize balanced local development. By confirming these prior findings, our results further emphasize that social trust serves as a critical resource that magnifies the economic benefits derived from robust local government competencies.

The findings of this study have several implications. First, this study fills a research gap by examining the impact of local government competencies on local economic revitalization, especially considering the fact that the role of local governments as key agents of urban regeneration in response to urban decline has often been overlooked. It seeks to clarify the relationships by differentiating local government competency in two aspects: the extent to which residents perceive this competency and the arithmetic means of human, financial, and ethical competencies. This expands the scope of research on local government competency within urban regeneration.

Second, local governments find it difficult to enhance their competencies due to limited resources, conflicts of interest, and rigid organizational culture and practices [9]. Local government competencies in terms of human resources, finances, and ethics are difficult to improve in the short term due to not only the central government’s intervention and control but also intrinsic limitations within local governments themselves. According to RBT, high competency in local governments leads to increased policy satisfaction and further activation of the local economy [5]. Conversely, local governments with relatively limited competency may be less effective at responding to urban decline than those with ample resources. However, this study confirms the existence of the moderating effect of trust, suggesting that even governments with limited competency can expect positive outcomes in urban decline responses if they leverage social capital, such as trust within the community. Trust accumulated within a community facilitates information sharing among stakeholders, promotes cooperation, and reduces transaction costs [20]. Private and public trust among residents can motivate expectations for local government policies and foster an environment conducive to business [92]. A confirmation of the moderating effect of social capital in the form of trust is of significant academic value, highlighting the importance of policies aimed at enhancing trust and strengthening internal government competencies. This study thus provides a framework for the integrated study of RBT from management and social capital theory from sociology within the field of urban regeneration.

Third, to enhance social trust, it is essential not only to strengthen local government competency but also to develop and accumulate social capital by considering the characteristics of local governments and regions. Accordingly, local governments should pursue various policies to foster trust and encourage residents and businesses to actively engage in income-generating and economic activities. Fukuyama [59], who attributes the difference between developed and developing countries to the difference in trust capital, argues that countries lacking a foundation of trust experience higher social costs and have difficulty achieving developed status. Recent failures in administrative and judicial systems have highlighted vulnerabilities within public institutions and raised concerns about the potential erosion of public trust in both central and local governments [62]. Trust in public institutions significantly shapes regional trust levels, with its impact varying according to city size and characteristics (e.g., large vs. small cities, metropolitan vs. non-metropolitan areas, and urban vs. rural areas) [93]. Given this, local governments should focus their competencies on strengthening social norms through social capital training for public officials and citizens, alongside targeted institutional improvements [20]. These efforts can play a crucial role in restoring trust, stabilizing communities, and enhancing overall regional resilience.

Finally, this study also has some limitations. First, despite the relevance of restricting the analysis to Seoul’s 25 districts, which exhibit the highest urban decline in the country, the study is limited to an 8-year period, from 2012 to 2019, which is a relatively short timeframe. Thus, generalizing these results to other local governments, particularly in non-metropolitan areas, may be challenging. Additionally, the short observation period may have reduced the accuracy of the estimation of the effects of government competency and trust. Future research should extend the observation period and study subjects to improve external validity. Second, despite the diverse components of social capital defined by scholars (e.g., networks, norms, obligations, communication, equality, and balance), this study only examines the effect of trust. Future studies should analyze the moderating effects of various components of social capital using quantified measurement data. Social capital is typically measured through perception surveys rather than hard data at the regional level due to its intangible nature, which limits data availability. To enhance the sophistication and scope of social capital research, conditions should be established to develop hard data at the regional level based on public data. Third, regional economic revitalization is a multidimensional concept that encompasses various elements, including industrial production, investment activities, consumer confidence, and fiscal sustainability. This study sought to reflect the multifaceted nature of the concept by incorporating job-related and fiscal indicators such as the number of employees per 1000 people, the number of employees per business establishment, the business establishment rate, property tax per capita, and GRDP per capita. While these indicators provide a robust framework for assessing local economic activity and resilience, the study was limited by the lack of reliable data for other critical dimensions, such as industrial output, investment levels, and consumer confidence. As a result, the analysis does not fully capture all aspects of regional economic revitalization. Future research should aim to adopt a more comprehensive approach by integrating additional indicators, such as regional innovation, industrial production, and economic sentiment, to enhance the depth and breadth of analysis. Expanding the scope in this way will offer a more nuanced and holistic understanding of regional economic revitalization and its driving factors. Fourth, one limitation of this study lies in the methodological choice of using ordinary least squares-based FGLS to model the relationships between variables despite the dependent variable being bounded between 0 and 1. While FGLS effectively addresses heteroscedasticity and autocorrelation present in the panel data, it does not explicitly account for the bounded nature of the dependent variable. As the dependent variable represents a continuous measure rather than a probabilistic outcome, it was treated as such to align with the analytical framework and research objectives of this study. However, alternative approaches such as generalized linear models or generalized estimating equations with a binomial distribution and logit link could explicitly model the bounded nature of the dependent variable, offering a probabilistic interpretation of the relationships. Preliminary analyses using these methods indicated that the main findings were consistent with the results obtained through FGLS, suggesting the robustness of the conclusions. Future studies may benefit from applying these alternative methods to provide additional perspectives and validate the results under different modeling assumptions. Fifth, one notable limitation of this study concerns the absence of a heterogeneity analysis to examine potential differences in performance across distinct regions. As the reviewer rightly points out, such an approach would offer valuable insights into the varying local conditions or contextual factors that may influence the observed relationships. However, due to constraints in data availability and the study’s research design, conducting a detailed regional heterogeneity analysis was not feasible. Future research should consider incorporating this dimension to provide a more nuanced understanding of how local contexts shape the outcomes under investigation. Finally, another limitation of this study is the reliance on secondary data, which restricted our temporal scope to the 2012–2019 period due to changes in the survey structure from 2020 onward. While this timeframe provides robust insights into the relationships examined, it does not capture more recent dynamics in local government competency and social trust. Future research could benefit from integrating newer datasets, should comparable variables become available, to validate and extend the findings of this study.

6. Conclusions

This study highlights the central role of local government competency and social trust as key drivers in addressing urban decline and fostering economic revitalization. By examining how financial, human, and ethical competencies influence local economic outcomes and verifying that trust strengthens these effects, the analysis demonstrates that building a foundation of both strong institutional resources and social capital is vital for sustainable community development. Although enhancing local government competency can be challenging due to resource constraints and structural limitations, leveraging trust within communities can partially compensate for these deficits. Policymakers and administrators should thus consider strategies that simultaneously improve the internal capacities of local governments and cultivate robust networks of trust among residents and businesses. This integrated approach offers a viable path forward for urban regeneration efforts, ensuring that local economies remain resilient and capable of adapting to future challenges.