In the past, urban schools in Pusan were in a superior position in terms of the number of students, school size, school facilities and equipment. Today, the situation is not as favorable as they once were due to the sudden decline in population and the extraordinary increase in downtown land prices in the late 1980s. The schools became too large for the few students that remained in the area. Hence, the number unused classrooms at the schools increased annually. A decline in student population is directly proportional to decreases in school expenditures. Therefore, a vicious cycle was created which made the financial situation more severe for the schools. It became very difficult to find the funds required to replace worn school facilities. Therefore, the degradation of schools emerged as a very severe problem for large cities such as Pusan. Today, the consolidation of primary schools in Pusan is under way. However, this raises two controversial issues. On the positive side, the consolidation improves the ability of the schools to educate students since school facilities and equipment are modernized from the funds gained through the sale of unused school sites. On the negative side, because the schools in the area are old and historic, there have been strong protest against the consolidation from the alumni. Also, some parents are against the consolidation because it increases the distance their children need to travel to attend school. They contend that the additional distance makes it more dangerous for the children. The purpose of the study is to analyze the economic and social ramifications of primary school consolidation in the downtown area. Three areas of the study were established: 1) the review of economic theories for school consolidation 2) an analysis of the benefits and costs of consolidation and 3) an analysis of social preference for the consolidation of primary schools in downtown area. A macro approach was utilized to review the related literature, articles, and government publications. Major findings from the study were as follows: 1. The social rate of return for the consolidation was 14.1%. The difference between benefit and cost indicated that the monetary value generated from the consolidation(44.5 billion won) was very high. 2. Some studies showed that the educational facilities of the downtown primary schools were too worn to be used for education. However, it should not be assumed that because modern educational facilities and equipment were insufficient, students could not study. 3. Surveys showed that the downtown schools subject to the consolidation should be sold for the modernization of school facilities. However, the plan was inconclusive, because responses for and against making consolidated schools public into parks were almost equal. 4. It can be expected that since the consolidated school facilities are new and modern, not only are the facilities very convenient for study, but facilities such as science laboratories, computer rooms, and gymnasiums are much better equipped compared to past school facilities. But it cannot be said that academic achievement and disciplinary education are also improved accordingly. 5. Attending consolidated school at a long distance was not inconvenient. Most parents preferred their children attending schools by mass transportation systems like buses or subway to on foot, since walking is dangerous for children in a big city. 6. Consolidation should be encouraged due to the positive results such as the procurement of educational finances and the modernization of school facilities. 7. The consolidation should be approached not in a one-sided way by the government but in a democratic way through public hearings.