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Journal of Economic Integration 1998 September;13(3) :426-463.
Modeling Inter-Korean Economic Integration

Marcus Noland Sherman Robinson Ligang Liu 

Institute for International Economics (IIE)
International Food Policy Research Institute (IFPRI)
Institute for International Economics
Copyright ©1998 Journal of Economic Integration
We construct the Korean Integration Model (KIM), a two-country computable general equilibrium (CGE) model linking the North and South Korean economies. Using KIM, we simulate the impact of a customs union and a monetary union of the two economies both in the presence and absence of cross-border factor mobility. Factor mobility is of critical importance. If factor markets do not integrate, the macroeconomic impact on South Korea of economic integration with the North is relatively small, while the effects on North Korea are large. With a monetary union and factor market integration, there is a significant impact on the South Korean income and wealth distribution. If investment flows from South to North and labor flows from North to South, there is a shift in the South Korean income distribution toward capital, and within labor toward urban high skill labor, suggesting growing income and wealth inequality in the South. (JEL Classification: F15, O53, P33)
1. Korean Development Bank [1994], "North Korea's Economy and Industry," KDB Economic and Industrial Focus, September.
2. World Bank [1985], "China: Economic Structure and International Perspective," Washington International Bank for Reconstruction and Development.
3. Stone, R., [1986], "Nobel Memorial Lectures 1984: The Accounts of Society," Journal of Applied Econometrics, 1; pp. 5-28.
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