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The Economic Reunification of Korea: A Dynamic General Equilibrium Model

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  • Bradford, Scott C.
  • Phillips, Kerk L.

Abstract

This paper constructs a dynamic specific factors model to examine the impact of the economic reunification of North and South Korea. The model is a compromise between the highly stylized neoclassical models of trade found in the theoretical trade literature, and the highly aggregated models used in dynamic macroeconomics. We find that the policies with the biggest effects on aggregate output are changes in government tax and spending rates, particularly spending on infrastructure. In contrast, we find that both skilled and unskilled wages are much more responsive to the particulars of trade policy, particularly openness to intra-Korea trade and intra-Korea labor mobility. The location of production in a fully integrated Korean economy is determined by the location of infrastructure.

Suggested Citation

  • Bradford, Scott C. & Phillips, Kerk L., 2008. "The Economic Reunification of Korea: A Dynamic General Equilibrium Model," MPRA Paper 23550, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:23550
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    References listed on IDEAS

    as
    1. Christiano, Lawrence J, 2002. "Solving Dynamic Equilibrium Models by a Method of Undetermined Coefficients," Computational Economics, Springer;Society for Computational Economics, vol. 20(1-2), pages 21-55, October.
    2. 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.
    3. Marcus Noland, 2000. "Avoiding the Apocalypse: The Future of the Two Koreas," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 94, January.
    4. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
    5. Jonathan Eaton, 1987. "A Dynamic Specific-Factors Model of International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(2), pages 325-338.
    6. Marcus Noland & Sherman Robinson & Ligang Liu, 1999. "The economics of korean unification," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 3(3), pages 255-299.
    7. Roldos, Jorge E, 1991. "Tariffs, Investment and the Current Account," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 175-194, February.
    8. Albert, Max & Meckl, Jurgen, 1998. "Qualitatively Rational Expectations and Adjustment in the Specific-Factors Model," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 670-682, November.
    9. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, number 9780198294979.
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    Cited by:

    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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    More about this item

    Keywords

    factor mobility; dynamic general equilibrium; specific-factors; Korea;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F15 - International Economics - - Trade - - - Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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