https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4199843

The recent slowdown of several of Korea’s major industries is raising fears of an economic slump, especially in related businesses or regions that rely heavily on such sectors. The interdependence of economic activities formed through production or capital investments means that the impact of economic shocks is no longer confined to a specific space or industry. A shock originating from one region can affect other industries or regions through inter-industrial and inter-regional links, which can create volatility in the national economy. As the role of interdependence among industries and regions has been highlighted, it has become increasingly necessary to develop policy measures that ensure stability in regional economies as well as national ones. This paper explores the patterns of economic transmission whereby shocks in one area are propagated to and affect other regions or industries. Previous studies have highlighted the fact that those patterns of transmission reflect the characteristics of a region or sector, such as its industrial structure or shock resistance (see Martin et al, 2016 and Diadato and Weterings, 2015). That said, identifying the patterns of transmission between regions and industries and confirming the amplification effects of economic shocks enhances understanding of the structural characteristics of regional economies and industries, which can provide a foundation for steady and sustainable growth. Chapter 2 briefly explains the analytical model and determines that the production activities of industries within a region interact with other sectors or areas. Chapter 3 analyzes the extent and scope of inter-regional and inter-industrial shock contagion. Building on the latter chapter’s findings, Chapter 4 describes the implications of stable management of regional economies.