Abstract
As the possibility of North Korean regime collapse has been raised and the economic gap between North and South Korea has been increasing, temporary separate operation has emerged as a way of economic integration of North and South Korea. Its main idea is that even if political integration is achieved rapidly, economic integration should proceed over time. It is generally accepted that temporary separate operation has desirable economic consequences but doubts about the feasibility are often raised because it is a scenario based on many assumptions, and politicians might prefer radical integration based on their short-term political interests. So, this paper aims to develop a temporary separate operation by providing more concrete reasons, by anticipating problems and by suggesting policy measures to enhance the feasibility. For this, the paper examines German reunification and European integration (especially Eurozone crisis) cases and compares them with the situations and features of economic and financial sectors of North and South Korea.
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(1st) Maintain peace and expand exchanges and cooperation in the economic, social, and cultural areas. (2nd) Form socio-economic and cultural community and several institutions to discuss various issues related to nation building. (3rd) Integrate systems completely into a single political entity and create a community of one nation and one people [26].
According to the Bank of Korea, it was estimated that the total GNI (nominal) ratio was 53:1 (about KRW 1900 trillion for the South, KRW 53 trillion for the North) in 2018 and 44:1(about KRW 1300 trillion for the South, KRW 30 trillion for the North) in 2010 [3].
No official indicators of North Korea’s overall macroeconomic conditions have been published since 1965. Exceptional economic figures published by North Korea are not considered trustworthy, since they are used for propaganda purposes to promote the regime. For this reason, the Bank of Korea since 1990 has applied capitalist methods of estimation to assess North Korea’s macroeconomic indicators, and these may be the only meaningful figures for reference [30].
(Radical integration) I:S = 2:5, free movement (moderate method) I:S = 5:2, limited (temporary separate operation) I:S = 8:1, strictly limited.
But even by temporary separate integration, the North’s income level would be 34% of South in 2039 from 4 to 5% in 2020. It means that it will take considerable time to complete the integration.
Response rate of “It should remain divided as the present for a considerable time” + “It would be better not to unify”: (2017) 27.3% (2018), 34.0% (2019) 36.5%
Foreign Trade Bank which performs foreign exchange services under the control of Central Bank and Joint Venture Bank which was established for foreign investment [24]
For example, suppose home and other region initially have equal output and unemployment, also suppose negative shock hits home, output falls and unemployment rise. If labor can move easily to other regions where the labor demand is higher, then the impact of massive layoff will be less painful, and the productivity can increase thanks to the cost reduction.
It was said that Germany did not satisfy the OCA properties at the time of reunification, because Germany had the intention to prevent East German migration to West and economic gap between East and West was also considerable [18].
North Korea has geographical advantage which relates to China and Russia onshore and close to Japan, and has abundant natural resources and labor forces. Also it shares Demilitarized zone (DMZ) which has well-preserved natural ecology with South Korea.
This paper also did not propose the separate period unconditionally, but rather conditionally “until the time when two economies converge enough” and “when the benefit of currency efficiency will be larger than the cost of economic stabilization”.
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This study was funded by the Korean Government Long-Term Fellowship Program for Overseas Study No. 2019-N-0043.
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Cho, Sj., De Moor, L. The Economic Integration Between North and South Korea: Lessons from German Reunification and European Integration. East Asia 38, 271–290 (2021). https://doi.org/10.1007/s12140-021-09359-w
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DOI: https://doi.org/10.1007/s12140-021-09359-w