Unraveling the Economic Echoes: The Russo-Ukrainian Conflict’s Influence on South Korean Macroeconomic Stability—Insights from the Energy Sector

• Published in: SAGE open 2024-10, Vol.14 (4)
• Main Author: He, Yugang
• Format: Article
• Language: English
• ISSN: 2158-2440; 2158-2440
• DOI: 10.1177/21582440241287296

The ongoing Russo-Ukrainian conflict has exerted a marked impact on global energy dynamics, consequently impairing the functional capacity of economies globally. Situated within the archetype of a small, open economy, South Korea has unavoidably experienced these economic tremors. This study, therefore, uses the South Korean example to scrutinize the reverberations of the Russo-Ukrainian war on pivotal macroeconomic constituents, primarily through the prism of the energy market. Utilizing Bayesian estimation methods and impulse response functions as instrumental tools for empirical exploration, the result delineates that an uptick in energy prices—a positive energy price shock—concludes in a downturn in firm output, investment, and petroleum product consumption. This shock simultaneously instigates a downswing in household consumption of petroleum goods and wage levels, counterbalanced by an elevation in household consumption of non-petroleum goods. Intriguingly, as the Russo-Ukrainian conflict endures, the impact of energy price shocks on the fluctuation of key macroeconomic indicators in Korea seems to be attenuating. This study serves as an adjunct to the preexisting Korean academic corpus on this subject, offering fresh insights that enhance the overall understanding of these complex economic phenomena. Plain language summary Purpose: This study uses the South Korean example to scrutinize the reverberations of the Russo-Ukrainian war on pivotal macroeconomic constituents, primarily through the prism of the energy market. Methods: Bayesian estimation methods and impulse response functions Conclusions: the positive energy price shock triggered by the conflict instigates a contraction in firm output, investment, and petroleum goods consumption. Meanwhile, households react to the surge in energy prices with a contraction in petroleum goods consumption and a decline in wages, offset by an expansion in non-petroleum goods consumption. Interestingly, the analysis unveils a temporal dimension to this economic impact. As the Russia-Ukraine war continues, the influence of energy price fluctuations on the volatility of key macroeconomic variables in Korea appears to diminish, indicating a potential adaptation mechanism within the South Korean economy.