Do External Impacts Cause Differences between Regional and National Business Cycles?: Focusing on the Dongnam Metropolitan Area

Abstract

Purpose – This study analyzes large differences and similarities through comparison with national level business fluctuations, including differences between regions within the Dongnam metropolitan area, focusing on the impact of major domestic and international economic shocks. Design/Methodology/Approach – This study conducted econometric analysis using the Markov switching model with the monthly manufacturing production indexes of each region from 2000 to 2020 as data. Findings – The characteristics of Dongnam metropolitan area, distinguished from other regions nationwide, are as follows. First, the regions’s manufacturing focuses on the heavy chemical industry and did not shrink, even during the 7th cyclical recession caused by the global IT bubble bursting. Second, the manufacturing sector in the Dongnam metropolitan area continued a downward trend, even during the 11th cyclical expansion. However, economic impact was found to have varied in size by region. Our analysis results show that Busan was more affected by internal and external impacts than Ulsan and Gyeongnam, showing slower recovery. Ulsan was shown to have much higher manufacturing resilience than other regions, despite several internal and external economic impacts. Finally, Gyeongnam showed several recession phases in 2008 and after 2016, but the duration was found to have been much shorter than in Busan. Research Implications – The impact and characteristics of business cycles caused by external shocks were found to have varied by region. The results imply that regionally specialized industrial support measures are required together with economic stabilization policies at the national level. It was also found that separate measures at the regional level need to be implemented in connection with governmental support measures for regional manufacturing industries.