Transmission of external shocks and regional heterogeneity: Evidence from Korean province-level data

Abstract

This paper uses panel local projection methodology to analyze Gross Regional Domestic Product (GRDP) and employment responses to external shocks, including US monetary policy, oil price, and geopolitical risk shocks. Our main findings are that the effects of US monetary policy and oil price shocks manifest with a lag of one to two years, while the impact of geopolitical risk shocks is estimated to occur immediately and dissipate rapidly. The factors behind heterogeneity in regional economic responses to external shocks were identified as income levels, industrial and demographic structures, household indebtedness, and global integration. These findings suggest that external shocks can exert heterogeneous effects depending on the nature of each region, primarily influenced by their industrial structure and economic vulnerability.