The effects of oil price on regional economies with different production structures: A case study from Korea using a structural VAR model

This study analyzes the effects of oil price fluctuations on regional macroeconomic variables with a structural VAR model. We classified fifteen metropolitan cities and provinces of Korea into four major regions (Capital, Central, Honam, and Gyeongsang) and examined the effects of oil price fluctuations on the economy of these regions. The results in the short- and long-term lag structures show a negative response to industrial production and price. The Capital region is less affected by oil price fluctuations than the other three provincial regions. We concluded that the government should focus on creating an industrial environment to accumulate production factors and technologies in oil price-sensitive regions.

► We examined the effects of oil price shocks on four major economic areas of South Korea.
► We used structural VAR analysis.
► We showed that the production structure of a region influences the impact of oil price shocks.
► We inference that the government should focus on creating an industrial environment.