A Tale of Two Islands: Macroeconomic Impacts of Real Estate in Jeju and Okinawa

Jeju in Korea and Okinawa in Japan are similar in their geopolitical and historical backgrounds and in terms of their substantial sizes as islands and status as famous tourist destinations. We can expect the situation of real estate markets on both islands to be similar too. This paper compares the impacts of macroeconomic factors on the real estate markets on both islands by investigating the relationships among various macroeconomic and financial variables and land trading data. The Granger causality tests on various macroeconomic and financial variables of the real estate markets in Jeju and Okinawa show some interesting results to compare. Land trades in Jeju affect employment in Jeju. Financial liquidity and interest rate in Korea also affect Jeju employment. The empirical results show that some relationships to housing markets are different: macroeconomic variables affect employment in Jeju and financial variables affect housing markets in Okinawa. Even if both islands share similar geopolitical backgrounds as well as the history of their independent countries, their real estate markets and their mainland economies affect their regional economies in different ways.