CIAO DATE: 07/02

Modeling Korean Unification

Abstract

For North Korea, product market integration would generate large welfare gains, sufficient to end the famine. Additional gains could be had through military demobilization. For the South, the impact of product market integration would be trivial, but the impact of factor market integration would be considerable, affecting the composition of output, distribution of income, and rate of growth. Given moderately rapid technological convergence, expected levels of cross-border migration, and equalization of rates on return on capital, per capita incomes in the North would remain well below those in the South for an extended period.

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