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Economic Impacts to Be Brought by the DPRK's Return to International Society: CGE Analysis with the GTAP 9A Data Base

Author

Listed:
  • Enkhbayar Shagdar

    (Economic Research Institute for Northeast Asia (ERINA))

  • Tomoyoshi Nakajima

    (Economic Research Institute for Northeast Asia (ERINA))

Abstract

Recent developments on the Korean Peninsula and worldwide may bring an end to the DPRK's isolation from the world economy. Employing the Global Trade Analysis Project (GTAP) Data Base and the standard GTAP Model (the Model), this paper analyzed the expected economic impacts to be brought by the DPRK's return to international society. However, as the DPRK is not a separate GTAP region, but is represented in the database as part of a composite region of the Rest of East Asia (XEA) along with Macao, the DPRK's data was generated using the SplitReg program, and the resulting data was used as the base data in the Model. The generated data indicated that the DPRK's GDP value was higher by about one-third than those commonly reported in the existing publicly available data. Upon generating the DPRK data, three economic revitalization and integration scenarios: (i) total factor productivity (TFP) growth in the DPRK; (ii) Korean Unification; and (iii) Northeast Asia free trade agreement (FTA), were considered in the analyses. The simulation results of assuming that the DPRK's total factor productivity would grow by 30% (60% of labor productivity growth of the ROK between 1963 and 1973) as a result of the country's return to international markets indicated that the DPRK would have a welfare gain of $6.6 billion associated mostly with the gains in technical change along with allocative efficiency improvements and terms-of-trade gains in investment and savings. The government services sector would be the largest beneficiary of these gains, followed by agriculture, extraction, heavy and light manufacturing sectors. Most of the other regions in the model would benefit from welfare gains as well, with the European Union (EU28), China and the U.S. being the largest beneficiaries mainly due to their gains in terms-of-trade in goods and services. The other two scenarios also resulted in welfare gains for the DRPK, but on smaller scales. As a result of the Korean Unification scenario, the DPRK would have a welfare gain of $1.7 billion, while it would be equal to $107 billion in the case of a free trade agreement in Northeast Asia. Contrary to the first scenario, most of these welfare gains were associated with the country's gains in terms of trade in goods and services. In terms of impacts on industry, all sectors will benefit from the TFP growth, while there will be winners and losers in the Korean Unification and Northeast Asia FTA scenarios.

Suggested Citation

  • Enkhbayar Shagdar & Tomoyoshi Nakajima, 2020. "Economic Impacts to Be Brought by the DPRK's Return to International Society: CGE Analysis with the GTAP 9A Data Base," Discussion papers 2003, ERINA - Economic Research Institute for Northeast Asia.
    • Handle: RePEc:eri:dpaper:2003
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    References listed on IDEAS

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    1. Angel Aguiar & Badri Narayanan & Robert McDougall, 2016. "An Overview of the GTAP 9 Data Base," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 181-208, June.
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    4. Sh. Enkhbayar & Tomoyoshi Nakajima, 2013. "Impacts of Mongolian FTAs with the Countries in Northeast Asia: CGE Analysis with the GTAP 8 Data Base," The Northeast Asian Economic Review, ERINA - Economic Research Institute for Northeast Asia, vol. 1(2), pages 43-67, December.
    5. 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.
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    More about this item

    Keywords

    CGE analysis; the DRPK's economy; Total Factor Productivity;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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