Economics at your fingertips  

The Economics of Korean Unification

Marcus Noland (), Sherman Robinson () and Li-Gang Liu
Additional contact information
Li-Gang Liu: Peterson Institute for International Economics

No WP97-5, Working Paper Series from Peterson Institute for International Economics

Abstract: We construct the Korean Integration Model (KIM), a two-country computable general equilibrium (CGE) model linking the North and South Korean economies. Using KIM, we simulate the impact of a customs union and an exchange rate unification of the two economies both in the presence and absence of cross-border factor mobility, treating technological transfer in three ways. Factor mobility is of critical importance. If factor markets do not integrate, the macroeconomic impact on South Korea of economic integration with the North is relatively small, while the effects on North Korea are large. With a unified exchange rate and factor market integration, there is a significant impact on the South Korean income and wealth distribution. If investment flows from South to North and labor flows from North to South, there is a shift in the South Korean income distribution toward capital, and within labor toward urban high skill labor, suggesting growing income and wealth inequality in the South. Similarly, the specific form of technological transfer is important: if North Korea succeeds in adopting South Korean technology, it experiences a tremendous boost in productivity in the traded goods sector, which tends to increase the magnitude of change in macroeconomic aggregates and distributional shares exhibited by South Korea. If integration is accompanied by large capital inflows, there is a significant appreciation of the real exchange rate with deleterious implications for the South Korean traded-goods sector.

Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link) (text/html)

Related works:
Journal Article: The economics of korean unification (1999) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Paper Series from Peterson Institute for International Economics Contact information at EDIRC.
Bibliographic data for series maintained by Peterson Institute webmaster ().

Page updated 2021-06-16
Handle: RePEc:iie:wpaper:wp97-5