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

Enkhbayar Shagdar and Tomoyoshi Nakajima

No 333199, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: 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. 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. 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.

Keywords: International Relations/Trade; Research Methods/Statistical Methods (search for similar items in EconPapers)
Date: 2020
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Working Paper: Economic Impacts to Be Brought by the DPRK's Return to International Society: CGE Analysis with the GTAP 9A Data Base (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:333199

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