Korean Unification: Economic Adjustments under German Assumptions

Jong Wha Lee; Warwick J. McKibbin

doi:10.1111/aepr.12264

Korean Unification: Economic Adjustments under German Assumptions

Jong Wha Lee, Warwick J. McKibbin

Research output: Contribution to journal › Review article › peer-review

5 Citations (Scopus)

Abstract

This paper explores the impact of unification on North and South Korea under the hypothetical scenario that German-type reunification occurs in the Korean peninsula. Simulation results using a global dynamic general equilibrium model show that with comprehensive market-oriented reform and opening, the North Korean economy could capitalize on its growth potentials. Unification can reduce the growth rate in South Korea for a certain period following the unification shock due to the transfer of resources out of the South into the North and an increase in risk on the Korea peninsula. Due to the relative sizes in population and per capita gross domestic product of the two Koreas, unification can be more disruptive on North and South Korea, compared to the experience of Germany. The critical factors determining the economic effects of unification are the nature of wage-adjustment, the size of resource transfers from the South to North, and exchange rate policy.

Original language	English
Pages (from-to)	262-281
Number of pages	20
Journal	Asian Economic Policy Review
Volume	14
Issue number	2
DOIs	https://doi.org/10.1111/aepr.12264
Publication status	Published - 2019 Jul

Bibliographical note

Funding Information:
The authors thank Hannah Dillingham, Seung yeon Jung, Weifung Liu, and Chul Jong Song for research assistance and Dirk Bethman, Yukiko Fukukawa, Ken Itakura, and Marcus Noland for helpful comments. This work was supported under the framework of international cooperation program managed by National Research Foundation of Korea (2017K2A9A1A01093008) and the Australian Research Council Grant DP150103821. †Correspondence: Warwick McKibbin, Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy, The Australian National University, Acton, ACT 2601, Australia. Email: [email protected]

Publisher Copyright:
© 2019 Japan Center for Economic Research

Keywords

F15
H77
Korean unification
North Korea
O19
O23
O53
convergence
dynamic general equilibrium
reform

ASJC Scopus subject areas

Economics, Econometrics and Finance(all)
Political Science and International Relations
Management, Monitoring, Policy and Law

Access to Document

10.1111/aepr.12264

Cite this

@article{eb48c7bc24ad44d4b3f6998afe004cd1,

title = "Korean Unification: Economic Adjustments under German Assumptions",

abstract = "This paper explores the impact of unification on North and South Korea under the hypothetical scenario that German-type reunification occurs in the Korean peninsula. Simulation results using a global dynamic general equilibrium model show that with comprehensive market-oriented reform and opening, the North Korean economy could capitalize on its growth potentials. Unification can reduce the growth rate in South Korea for a certain period following the unification shock due to the transfer of resources out of the South into the North and an increase in risk on the Korea peninsula. Due to the relative sizes in population and per capita gross domestic product of the two Koreas, unification can be more disruptive on North and South Korea, compared to the experience of Germany. The critical factors determining the economic effects of unification are the nature of wage-adjustment, the size of resource transfers from the South to North, and exchange rate policy.",

keywords = "F15, H77, Korean unification, North Korea, O19, O23, O53, convergence, dynamic general equilibrium, reform",

author = "Lee, {Jong Wha} and McKibbin, {Warwick J.}",

note = "Funding Information: The authors thank Hannah Dillingham, Seung yeon Jung, Weifung Liu, and Chul Jong Song for research assistance and Dirk Bethman, Yukiko Fukukawa, Ken Itakura, and Marcus Noland for helpful comments. This work was supported under the framework of international cooperation program managed by National Research Foundation of Korea (2017K2A9A1A01093008) and the Australian Research Council Grant DP150103821. †Correspondence: Warwick McKibbin, Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy, The Australian National University, Acton, ACT 2601, Australia. Email: [email protected] Publisher Copyright: {\textcopyright} 2019 Japan Center for Economic Research",

year = "2019",

month = jul,

doi = "10.1111/aepr.12264",

language = "English",

volume = "14",

pages = "262--281",

journal = "Asian Economic Policy Review",

issn = "1832-8105",

publisher = "Wiley-Blackwell Publishing Ltd",

number = "2",

}

TY - JOUR

T1 - Korean Unification

T2 - Economic Adjustments under German Assumptions

AU - Lee, Jong Wha

AU - McKibbin, Warwick J.

N1 - Funding Information: The authors thank Hannah Dillingham, Seung yeon Jung, Weifung Liu, and Chul Jong Song for research assistance and Dirk Bethman, Yukiko Fukukawa, Ken Itakura, and Marcus Noland for helpful comments. This work was supported under the framework of international cooperation program managed by National Research Foundation of Korea (2017K2A9A1A01093008) and the Australian Research Council Grant DP150103821. †Correspondence: Warwick McKibbin, Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy, The Australian National University, Acton, ACT 2601, Australia. Email: [email protected] Publisher Copyright: © 2019 Japan Center for Economic Research

PY - 2019/7

Y1 - 2019/7

N2 - This paper explores the impact of unification on North and South Korea under the hypothetical scenario that German-type reunification occurs in the Korean peninsula. Simulation results using a global dynamic general equilibrium model show that with comprehensive market-oriented reform and opening, the North Korean economy could capitalize on its growth potentials. Unification can reduce the growth rate in South Korea for a certain period following the unification shock due to the transfer of resources out of the South into the North and an increase in risk on the Korea peninsula. Due to the relative sizes in population and per capita gross domestic product of the two Koreas, unification can be more disruptive on North and South Korea, compared to the experience of Germany. The critical factors determining the economic effects of unification are the nature of wage-adjustment, the size of resource transfers from the South to North, and exchange rate policy.

AB - This paper explores the impact of unification on North and South Korea under the hypothetical scenario that German-type reunification occurs in the Korean peninsula. Simulation results using a global dynamic general equilibrium model show that with comprehensive market-oriented reform and opening, the North Korean economy could capitalize on its growth potentials. Unification can reduce the growth rate in South Korea for a certain period following the unification shock due to the transfer of resources out of the South into the North and an increase in risk on the Korea peninsula. Due to the relative sizes in population and per capita gross domestic product of the two Koreas, unification can be more disruptive on North and South Korea, compared to the experience of Germany. The critical factors determining the economic effects of unification are the nature of wage-adjustment, the size of resource transfers from the South to North, and exchange rate policy.

KW - F15

KW - H77

KW - Korean unification

KW - North Korea

KW - O19

KW - O23

KW - O53

KW - convergence

KW - dynamic general equilibrium

KW - reform

UR - http://www.scopus.com/inward/record.url?scp=85064917364&partnerID=8YFLogxK

U2 - 10.1111/aepr.12264

DO - 10.1111/aepr.12264

M3 - Review article

AN - SCOPUS:85064917364

SN - 1832-8105

VL - 14

SP - 262

EP - 281

JO - Asian Economic Policy Review

JF - Asian Economic Policy Review

IS - 2

ER -

Korean Unification: Economic Adjustments under German Assumptions

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this