Korean Unification: Economic Adjustments under German Assumptions

Jong Wha Lee, Warwick J. McKibbin

Research output: Contribution to journalReview articlepeer-review

5 Citations (Scopus)


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 languageEnglish
Pages (from-to)262-281
Number of pages20
JournalAsian Economic Policy Review
Issue number2
Publication statusPublished - 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: warwick.mckibbin@anu.edu.au

Publisher Copyright:
© 2019 Japan Center for Economic Research


  • 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


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