Korean Unification: Economic Adjustments under German Assumptions

This paper explores the impact of unification on North and South Korea under the hypothetical scenario that German‐type reunification occurs in the Korean peninsula. Simulation results using a global dynamic general equilibrium model show that with comprehensive market‐oriented reform and opening, the North Korean economy could capitalize on its growth potentials. Unification can reduce the growth rate in South Korea for a certain period following the unification shock due to the transfer of resources out of the South into the North and an increase in risk on the Korea peninsula. Due to the relative sizes in population and per capita gross domestic product of the two Koreas, unification can be more disruptive on North and South Korea, compared to the experience of Germany. The critical factors determining the economic effects of unification are the nature of wage‐adjustment, the size of resource transfers from the South to North, and exchange rate policy.     

Free Trade Agreements and the Prospects for Regional Integration in East Asia

Trade policy in East Asia has switched from non-discriminatory unilateral liberalization, reinforced by General Agreements on Tariffs and Trade/World Trade Organization (GATT/WTO) commitments, to discriminatory free trade agreements (FTA). The paper surveys the FTA activity of the major regional players: China, the ASEAN countries, Japan, and South Korea. It concludes that emerging FTAs are weak and partial. A hub-and-spoke pattern of dirty FTAs will not drive regional economic integration or further integration with the global economy. Rather, it could be a force of regional economic disintegration – especially if the multilateral trading system weakens further. At the same time, FTA activity is distracting attention from the WTO, and, more fundamentally, from unilateral liberalization and domestic structural reforms. Hence, East Asian trade policies need to be rebalanced, with better-quality FTAs and more focus on the WTO. However, more important than the WTO and FTAs is a fresh spurt of unilateral liberalization and structural reform outside trade negotiations.     

Financial and Corporate Sector Restructuring in South Korea: Accomplishments and Unfinished Agenda

Following the Asian financial crisis, South Korea has undertaken wide-ranging, economic structural reforms under IMF conditionality while receiving IMF assistance. This paper describes Korean accomplishments in restructuring the financial and corporate sectors, and also addresses the unfinished agendas. It suggests ongoing reforms in a knowledge-based economy, in which the financial sector serves as the "brain" of market economy by allocating scarce capital to the most profitable firms within South Korea. It also recommends that subsidiary companies of Korean chaebols become independent viable business units, and that new sources of growth be found by promoting Korean SMEs and venture businesses. JEL Classification Numbers: E44, F34, G18, G32, G34, L11, L22, O16, O53.     

A study on the military alliance of South Korea–United States with the existence of threat from North Korea: a public good demand approach

The military alliance between South Korea and the USA is examined in the context of the North Korean threat. The findings are as follows: First, South Korea is more sensitive to the North Korean threat than the USA. Second, defense goods are affected more by national income and own price than by the North Korean threat. Third, the spill-in elasticity of demand for defense goods in South Korea is increasing in absolute value. The policy implications are that South Korea needs to strengthen the military alliance with the USA and to put emphasis on national income growth in defense budget planning. We would like to thank two anonymous referees for their helpful comments. This research was supported by Korea National Defense University and Hankuk University of Foreign Studies Research Fund.     

Potential economic reforms in North Korea: a dynamic general equilibrium model

We use a dynamic general equilibrium model to examine hypothetical market reforms in North Korea. We model partial reform, in which producers choose capital allocations across sectors, with the government still fixing total capital. We also consider two full market reform scenarios. In one, public infrastructure investment remains unchanged, while, in the other, it increases substantially. In all scenarios, we assume a closed economy and a constant military size. Our simulations show little hope for the North Korean economy without boosting infrastructure. Although all of the reforms raise consumption, only significant increases in infrastructure investment bring positive economic growth.     

Market Activities and Trust of North Korean Refugees

This study investigates the effects of North Koreans’ informal market activities on their trust. Using survey data on North Korean refugees living in South Korea, we find that North Korean refugees who previously traded goods in markets in North Korea have higher trust in most people. By contrast, the experience of trading in markets did not affect trust in other North Korean refugees, suggesting little evidence of in‐group favoritism. Our main result is robust when we apply the instrument variable approach. This finding suggests the possibility that increased marketization in North Korea leads to a weakened control of the authorities over the North Korean society.     

The economics of korean unification

We simulate the impact of a customs union and an exchange rate unification of North and South Korea. Factor mobility and technological change are of critical importance. If factor markets do not integrate, the macroeconomic impact on South Korea of economic integration is relatively small, while the effects on North Korea are large. With factor market integration, there is a significant impact on the South Korean income and wealth distribution. If integration is accompanied by external capital inflows, there is a significnt appreciation of the real exchange rate with deleterious implications for the South Korean traded-goods sector.     

Capital Accumulation And Trade Policy:The Case Of Korea

This paper investigates whether there are any systematic links between Domestic savings and export growth in light of the Korean experience, beginning with the early 1960s when trade policy shifted from an inward to outward orientation. The paper also examines how domestic investment might have been affected by the trade reforms. The study reveals that the impressive growth of Korea's domestic savings over the 1960-95 period owes in no small part to the Trade reforms and the subsequent rapid growth of exports. Evidence also Suggests that the long-lasting investment boom experienced by Korea over the 1960–95 period was initiated and maintained to a significant degree by the trade reform of the 1960s and thereafter. [F43, E21].     

Rice market integration in the Mekong River Delta1

In the last decades Vietnam has become a major supplier in the world's rice market. This position is the result of the policy reforms that have been implemented in the agricultural sector. This paper assesses the impact of the liberalization policies and focuses on the spatial price differences in the domestic rice market. The results show that price patterns correlate strongly in the Mekong River Delta. Even prices in other regions are integrated with price patterns in the South. Interestingly, private traders in the Mekong Delta are only indirectly responsible for the latter result. They satisfy local demand and deal with state‐owned enterprises (SOEs). In the framework of the national food security policy, the state‐owned food companies ‘subsidize’ transactions between the South and the North. Moreover, the state‐owned food companies still dominate export transactions. The latter issues constitute two major queries for policy makers involved in the liberalization of the rice market, as further policy measures should not jeopardize the interests of domestic rice consumers.     

How credible is the North Korean threat?

We perform event analysis on particular episodes of tension in the Korean peninsula between 2000 and 2008, and investigate the effect of the events on South Korean financial markets (stock markets, bond yield spreads and the exchange rate) given that South Korea would be the first affected by a military aggression from North Korea. Surprisingly, in nearly all cases, these events, which have often been dramatized in the world media, have no significant impact on either of these variables or only a very small one. We also find no significant impact of events on listed firms that would a priori be likely to suffer from increased tension between the two Koreas. Since financial markets often contain better predictions than expert opinions or surveys, these results strongly suggest that the North Korean threat is non‐credible.     

DOES THE GRAVITY MODEL EXPLAIN SOUTH KOREA'S TRADE FLOWS?*

This paper applies the gravity model to explain South Korea's bilateral trade flows and to extract practical trade policy applications. A trade structure and an Asian‐Pacific trade network are included in the gravity equation to characterize the peculiarity of South Korea's trade patterns. The empirical result shows that South Korea's trade follows a Heckscher–Ohlin model more than an increasing returns or a product differentiation model. South Korea has large unrealized trade potentials with Japan and China, suggesting that they are desirable partners for an FTA. North–South Korean trade will expand markedly if bilateral relation normalizes and North Korea participates in APEC.     

Determinants of Labor Market Participation and Wages of North Korean Female Refugees in South Korea

This paper uses data from a survey on 289 North Korean female refugees who arrived in South Korea in 2007 to understand the determinants of their economic adaption in the South Korean labor market. More specifically, we look at the effects of job finding channels and government policies on the labor market participation and wages of these women. We find that job finding through both personal contacts and public employment networks increases the probability of finding employment, but the former, especially job finding through contacts with South Koreans, is the most effective route to finding employment. In addition, jobs with higher wages are acquired in employment attained from South Korean referrals, followed by South Korean government agencies and those from North Korean refugee contacts. We further find that labor market participation is negatively affected by both public benefits and private transfers possibly because of increases in the reservation wages of job seekers.     

Impact of domestic financial liberalization on economic growth in Pakistan

This paper attempts to investigate the domestic components of the financial liberalization process in Pakistan and develops an index of domestic financial liberalization capturing the important dimensions of reform process. Employing the multivariate co-integration technique and error-correction mechanism, the results indicate a positive impact of the index on economic growth in the long run, while its short run impact is found to be negative. Empirical findings highlight the importance of further financial deepening and financial intermediation, in a conducive environment, that are essential components to successfully implement reforms for growth stimulation.     

Crisis and Recovery: What We Have Learned from the South Korean Experience?*

This paper analyzes the process of recovery from the 1997 financial crisis in South Korea, and draws some lessons from it. The fast restoration of financial stability due to early closure of non‐viable financial institutions and quick resolution of non‐performing loans was critical for the speedy recovery of the South Korean economy. The swift adjustment in fiscal and monetary policies in addition to the large depreciation of real exchange rates also supported the fast recovery. Corporate and government bond markets played an important role in the financial restructuring and macroeconomic adjustment process. Structural reforms helped to alleviate the weaknesses in the corporate sector, particularly in chaebol groups. However, the fast recovery also generated unwelcome side‐effects. Because of aggressive fiscal expansion through government‐guaranteed bonds and public credit guarantee programs, sovereign liabilities increased greatly and transparency of the official fiscal stance deteriorated. Thanks to structural reform, corporate and financial sectors began to recognize the importance of micro risk management, but increased risk aversion contributed to the slowdown of corporate investment and, therefore, reduced long‐run growth perspective in South Korea. How to revive long‐term growth rates remains an important question in South Korea despite fast recovery from the crisis.     

Openness and Growth in North Korea: Evidence from Time–Series Data

New growth theories suggest that an economy's increased openness raises domestic productivity, and hence must have a positive effect on the living standards of a nation. The North Korean economy, isolated from world trade for several decades and its economy devastated, provides a test for this implied causality. The possibility that the ultimate source of declining real gross national product since 1974 is a decrease in trade liberalization of the North Korean economy cannot be rejected. The results are more definitive when the sample is split into two subperiods, pre–1974 and post–1974. These findings are generally consistent with the conventional model in which free trade stimulates economic growth.     

Korea's Growth Performance: Past and Future

South Korea is arguably the premier development success story of the last half century. Rapid growth coincided with extensive state interventions in the economy, and considerable controversy exists as to how much this performance should be credited to the country's state‐led development strategy and to what extent the lessons from that experience might be portable or applied elsewhere. The salience of this issue has grown as South Korea has become a more important provider of development assistance and advice. Now the country faces challenges in maintaining its superior economic performance, notably interrelated problems revolving around the country's demographics, long‐term fiscal position, and lagging productivity in the services sector domestically, and a taxing environment externally. Finally, the country confronts scenarios involving potential instability, collapse, and/or absorption of its neighbor, North Korea.     

Gradual globalization and inequality between and within countries

Abstract.  This paper investigates the effects of gradual trade liberalization on intra‐country and inter‐country inequality. It assumes two countries, North and South, and two factors, skilled labour and unskilled labour. North is defined as the one that is relatively skilled‐labour abundant and larger. A marginal trade liberalization from autarky is shown to (a) increase (decrease) in skilled‐unskilled wage differential in the North (South) and (b) raise the inequality between North and South. As the global economy approaches free trade, a marginal trade liberalization has effects, which are the opposite of (a) and (b); that is, the relative wage falls in the North and rises in the South, and North‐South inequality decreases.     

高等教育:韩国经济原动力

韩国作为我国的邻邦,近些年经济发展势头迅猛。韩国经济的跳跃式发展,其中一个与众不同的原因是由于起主要推动作用的教育的驱动。剖析了韩国经济发展的特征及其原动力,建立了内生经济增长模型,并以韩国经济发展与高等教育发展的20年的数据为依据,通过实证分析证明了高等教育是推动韩国经济增长的原因,最终总结出韩国的高等教育对我国高等教育未来发展的启示。     

Carbon Dioxide Emissions of Korea and Japan and Its Transmission Via International Trade

We estimated total CO2 emissions of Japan and South Korea for 1990 using the familiar input-output model. The differences in CO2 emission between two countries are decomposed into their components, and effects of international trade on domestic CO2 emissions are analyzed for both countries. We show that, even though the absolute level of emission is much lower in South Korea than in Japan, total emission intensities are generally higher in the former. Korean exports to Japan are more emission intensive than the reverse, while exports of both countries to the rest of the world are more emission intensive than their bilateral trade. [F14]     

North–South trade and income inequality

This paper investigates the effects of North–South trade on international income inequality. While empirical studies suggest that trade liberalization encourages income convergence and reduces the per capita income gap between poor and rich countries, North–South trade is shown to increase the income gap between the two regions. On the other hand, trade liberalization by either region increases the welfare of both regions, and does not necessarily reduce the gap in “real income” or utility.