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Modeling the Economic Impacts of Korean Unification

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  • Warwick J. McKibbin
  • Jong Wha Lee
  • Weifeng Liu
  • Cheol Jong Song

Abstract

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.

Suggested Citation

  • Warwick J. McKibbin & Jong Wha Lee & Weifeng Liu & Cheol Jong Song, 2018. "Modeling the Economic Impacts of Korean Unification," Asian Economic Journal, East Asian Economic Association, vol. 32(3), pages 227-256, September.
    • Handle: RePEc:bla:asiaec:v:32:y:2018:i:3:p:227-256
    DOI: 10.1111/asej.12160
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    1. Funke, Michael & Strulik, Holger, 2005. "Growth and convergence in a two-region model: The hypothetical case of Korean unification," Journal of Asian Economics, Elsevier, vol. 16(2), pages 255-279, April.
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    3. Scott C. Bradford & Dong-jin Kim & Kerk L. Phillips, 2011. "Potential economic reforms in North Korea: a dynamic general equilibrium model," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 14(4), pages 321-332, December.
    4. Jiyoung Choi, 2016. "Estimation of Formal and Informal Sectors in Social Accounting Matrix for the North Korean Economy (in Korean)," Working Papers 2016-14, Economic Research Institute, Bank of Korea.
    5. Joseph E. Gagnon & Paul R. Masson & Warwick J. McKibbin, 2019. "German Unification: What Have We Learned from Multi-Country Models?," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 4, pages 101-140, World Scientific Publishing Co. Pte. Ltd..
    6. McKibbin, Warwick J. & Pearce, David & Stegman, Alison, 2007. "Long term projections of carbon emissions," International Journal of Forecasting, Elsevier, vol. 23(4), pages 637-653.
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    8. Scott Bradford & Dong-jin Kim & Kerk Phillips, 2011. "Potential economic reforms in North Korea: a dynamic general equilibrium model," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 14(4), pages 321-332.
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    Cited by:

    1. Jesús Crespo Cuaresma & Olha Danylo & Steffen Fritz & Martin Hofer & Homi Kharas & Juan Carlos Laso Bayas, 2020. "What do we know about poverty in North Korea?," Palgrave Communications, Palgrave Macmillan, vol. 6(1), pages 1-8, December.
    2. Jong‐Wha Lee & Warwick McKibbin & Marcus Noland, 2018. "Prospects and Economic Impacts of Korean Unification: An Introduction," Asian Economic Journal, East Asian Economic Association, vol. 32(3), pages 221-225, September.
    3. Shagdar, Enkhbayar & Nakajima, Tomoyoshi, 2020. "Economic Impacts to Be Brought by the DPRK’s Return to International Society: CGE Analysis with the GTAP 9A Data Base," Conference papers 333199, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Moon, Weh-Sol & Mun, Sung Min & Lee, Jong-Kyu, 2018. "Macroeconomic impact of Korean reunification: The role of factor market opening," Journal of Asian Economics, Elsevier, vol. 58(C), pages 36-58.

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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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