This paper investigates the importance of a common factor andregion-specific factors in Korea’s 16 local economies’ business cycles. ABayesian dynamic factor model is utilized to estimate a dynamic factor commonto all macroeconomic aggregates (output, consumption, and investment) andlocal economies, and 16 region-specific factors common to all localaggregates, simultaneously. To examine the relationship between theimportance of unobserved factors and the macroeconomic structure of the localeconomies, we perform a linear regression analysis. The results indicate thatoverall, the common factor plays an important role in driving Korea’s localbusiness cycles. Especially, the common factor is the critical source ofvolatility of both consumption and output. On the other hand, the commonfactor plays a minor role explaining investment fluctuations. This paper alsofinds that the importance of the common and region-specific factors acrossKorea’s local economies, is affected by the local macroeconomic structure suchas the share of government expenditure in GRDP and manufacturing’s share ofoutput.