Modelling the Economic Impacts of Korean Unification

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 three
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.