Exploring international linkages using generalised connectedness measures: The case of Korea

Korea is a textbook example of a small open economy which is susceptible to conditions overseas but cannot affect them itself. Policymakers in Korea would therefore naturally benefit from an enriched understanding of the connections that exist between the Korean and global economies. We provide a detailed summary of these linkages using the generalised connectedness methodology introduced by Greenwood-Nimmo et al. (2015). Among our principal findings is the observation that domestic conditions are only generally important in the short to medium term, with overseas conditions exerting a dominant influence on Korea's economic prospects in the long run. The economy which exerts the strongest effect on Korea is the US, with a considerable role also played by global energy markets. Furthermore, we find that the global financial crisis is associated with greater connectedness of the Korean economy with advanced economies and its reduced connectedness with emerging economies.