This paper explores the economic impacts of Korean unification on North and South Korea. It presents a new consistent database on macroeconomic, sectoral and trade data, and an input–output table for the North Korean economy, and then incorporates it in a global intertemporal multi-sector general equilibrium model. Assuming hypothetical scenarios such as North Korea’s reform and gradual convergence, its sudden collapse and immediate unification, and chaos and crises in both Koreas, we quantify the consequences of Korean unification on economic activity, trade and capital flows in the two Koreas. The results highlight the importance of the unification processes and of alternative policy responses in both Koreas to the economic impacts of unification.
Bibliographical noteFunding Information:
*McKibbin (corresponding author): Crawford School of Public Policy, Australian National University, Acton ACT 2600, Australia. Email: Warwick.McKibbin@anu.edu.au. Lee: Department of Economics, Korea University, 145 Anam-ro, Sungbuk-gu, Seoul 02841, Korea. Liu: Crawford School of Public Policy, Australian National University, Acton ACT 2600, Australia. Song: Korea Institute for Health & Social Affairs, Building D, 370 Sicheong-daero, Sejong City 30147, Korea. The authors thank Michael Burda, Marcus Noland, Rod Tyers and an anonymous referee of this journal for helpful comments. We also thank participants at the workshops at the Australian National University, the Bank of Korea, the Brookings Institution and Korea University for useful comments and suggestions. This research is funded by a grant from the Australian Research Council # DP150103821. The views in this research are those of the authors and do not necessarily reflect the views of the organizations with which they are affiliated.
© 2018 East Asian Economic Association and John Wiley & Sons Australia, Ltd.
- Dynamic general equilibrium
- Economic growth
- Economic integration
- Korean unification
- North Korea
ASJC Scopus subject areas
- Geography, Planning and Development