​❍ A rise in interest rate in Korea that is caused by the interest rate increase in U.S. for controlling high inflation rate from the quantitative easing policy. In addition, the growth rate of interest rate in U.S. is higher than in Korea, which affects on a rise of exchange rate in Korea. Those changes in interest rate and exchange rate in Korea are expected to have a significant effect on Small and Median Enterprises(SMEs) in Jeollabuk-do.

❍ This report analyzes the impact of rise in interest rate and exchange rate on the insolvency of SMEs in Jeollabuk-do after Covid-19 utilizing the autoregressive distributed lag (ARDL) model and the data from the Bank of Korea(BOK) and Korea Credit Guarantee Fund(KODIT).

❍ In summary, a rise of interest rate and exchange rate contributes to reduce the insolvency of SMEs in a short-term. A rise in interest rate leads to shrink the volume of short-term loans in SMEs. Additionally, an increase of exchange rate might cause the expansion of exports in a short-term, which contributes to secure liquidity.

❍ In contrast with short-term results, a rise of exchange rate has an expansion effects on the insolvency of SMEs in a long-term. This result implies that an increase costs of imported raw materials for production from a rise of exchange rate leads to an increase of price for exporting products in a long-term. This negative long-term effect is expected to be higher than a positive short-term effect.

❍ Our results show that a rise of interest rate effect due to Covid-19 does not have an impact on the insolvency of SMEs in a long-term. This result might be originated from not enough data periods to analyze. The financial market change has a impact on real economy with time lags. In turn, a rise of interest rate normally expands the insolvency of SMEs due to an increase of interest burden.

❍ Therefore, Jeollabuk-do should examine the exchange rate volatility effect on SMEs in this region and set up corresponding policies to minimize a possible negative effects. Considering that a rise of exchange rate has a negative effect on the conditions for importing raw materials, SMEs with high dependency rate on imported raw materials should be monitored wells and Jeollabuk-do should develop a specific corresponding policy. Moreover, Jeollabuk-do should monitor well on the insolvency of SMEs. In summary, Jeollabuk-do must set up corresponding policies according to the global economic issues and those effect on SMEs in Jeollabuk-do as fast as possible to minimize the global shock.​