This paper examines how gubernatorial elections influence the local economy in South Korea. The local economy is alleged to be boomed as an election day approaches, yet this phenomenon, so called political business cycle, has not been empirically examined at the local elections in South Korea. Existing researches of the political business cycle are about a presidential election and the South Korean macro economy. Moreover, when the previous studies explain a gubernatorial election, they only look at spending patterns of local governments. A gubernatorial election may be more important than a presidential election in two reasons. First, in South Korea, governors can run for reelection, not a president. So, it is possible to study mid-to-long term influence of local politics to its economy. Second, a research on a gubernatorial election can promote democracy in local regions of South Korea by providing insights to voters. In relation to the previous researches of the political business cycle, the hypothesis is that local economy, especially average housing price of election regions and stock prices of regional companies, becomes more favorable for incumbents as an election approaches. In other words, the local housing market and stock prices of local companies will increase as time moves closer to an election day. The gubernatorial election data are used to analyze their influence on the local housing market and the local companies’ stock price. Dependent variables are an average housing price and an average stock price of local companies. Independent variable is time before an election day. Because economical changes can be delayed appearing in an actual market, monthly adjustment of data are applied to the model as an independent time variable.

Keywords: Political Business Cycle, Gubernatorial Election, Stocks, Housing, South Korea