48
Of course , unification would have benefits as well as costs . Given the extreme militarization of North Korea , a peace dividend would be associated with the reduction of military tensions on the Korean peninsula and the concomitant reduction in military expenditure .
Focus on Korea : Economic Giant
A critical variable affecting virtually every issue of interest would be the magnitude of cross-border labor migration from North to South . Migration would act as a substitute for capital transfer . The more people are allowed to migrate , the lower the amount of capital investment necessary to reconstruct the North Korean economy .
My research suggests that under a scenario of moderate , controlled , cross-border migration , and rapid convergence in North Korea toward South Korean levels of productivity , bringing the level of income in North Korea to half that of the South would require a decade and well over $ 1 trillion ( roughly equal to South Korea ’ s annual national income ).
Such a process would be accompanied by a mild slowing of the South Korean growth rate , a rapid acceleration of the North Korean growth rate , and an increase in peninsular output relative to the continued division of the peninsula .
Within South Korea , income would shift from labor to capital and within labor , from relatively low-skilled to relatively high-skilled labor . If one assumes that highly skilled people are the predominant owners of capital , then this implies that unification will generate increased income and wealth inequality in South Korea , absent some compensatory government policies .
Of course , unification would have benefits as well as costs . Given the extreme militarization of North Korea , a peace dividend would be associated with the reduction of military tensions on the Korean peninsula and the concomitant reduction in military expenditure .
Put crudely , the economics come down to the movement of Southern money north or the movement of Northerners south .
The risk for South Korea associated with engagement is not the creation of symmetric dependency , as is sometimes alleged . The process of economic integration would create highly asymmetric dependency in favor of the South . The real threat to the South of economic integration lies elsewhere . The South Korean economy has problems with nontransparent and corrupt government-business relations , as documented by the nightly news , as well as more systematic cross-national surveys produced by the World Bank , Transparency International , and others . In the North , there is no real difference between the state and the economy . Any large-scale economic integration between the North and the South will be by its very nature a highly politicized process , and the expansion of the government ’ s role in the South Korean economy that would accompany this process could be a setback for the quality of governance . Lucien : Thanks for an excellent interview ! ■
Lucien : We ’ ve been hearing a lot about North Korea lately . What are the implications for the South Korean economy ? Marcus Noland : North Korea represents the world ’ s largest contingent liability . Unification generally boils down to variants of four scenarios :
• Peaceful , gradual , consensual unification measured in decades . This is the official position of both governments .
• An abrupt German-style collapse of the North and its absorption by the South .
• A violent conflict in which one side prevails .
• A permanent division of the peninsula .
The first outcome is possible though doubtful . The third possibility is horrific and , given the maintenance of deterrence on the peninsula , which has prevented large-scale conflict for more than 60 years , hopefully will not eventuate . That leaves the second and fourth possibilities . Which of these two scenarios prevails revolves around whether North Korea successfully addresses its economic , political , and diplomatic challenges and survives permanently as an independent political entity or whether the multiple stresses that the regime confronts prove unmanageable and it experiences abrupt change , culminating in its absorption by South Korea . Ultimately the key determinant is the capacities of the North Korean leadership . While the rest of the world can influence incentives at the margin , we should not exaggerate how much influence we have on these internal developments .
Whether unification occurs through a prolonged consensual process or more abruptly , as it did in the German case , one can think of two effects . The first is the pure economic impact of integration , and the second is the impact on internal political economy . With respect to the first issue , the key is the magnitude and nature of cross-border movements of labor and capital .
North Korea is arguably the world ’ s most distorted economy . Fundamental reform could have two profound effects : First , exposure to international trade and investment would significantly increase . Second , Upcoming EAA Thematic Issues changes in the composition of output could be tremendous , involving literally millions of workers changing employment . My computer modeling of this process indicates that unification would be accompanied by Spring 2014 : Teaching Asia through an increase in inequality in North Korea , albeit in the context of a significant improvement in living standards and a dramatic reduction in
Field Trips and Experiential Learning poverty .
FALL 2014 : Maritime Asia
For South Korea , in pure economic terms , integration of product markets alone is unlikely to have a major impact on the South Korean economy — trade with North Korea would mostly substitute for trade
WINTER 2014 : Asia : Biographies currently conducted with other countries and , given North Korea ’ s small and Personal Stories ( Part I ) size relative to South Korea , would have a trivial impact on South Korea . Integration of labor and capital markets is a different matter , however , SPRING 2015 : Southeast Asia in the and could have a profound effect on the South , depending on how fast Humanities and Social Science Curricula North Korea could absorb new technology , how much labor would be permitted to migrate from the North to the South , and how much capital would be invested in the North .
82 87
82 59