1. Moonsung Kang Division of International Studies Korea University
Comments on “Modelling the Economic Impacts of Korean Unification” by McKibbin, Lee, Liu and Song
Moonsung Kang
Division of International Studies
Korea University

2. Summary (1)
Great Work in Modelling Economic Impacts of Korean Unification
Three Scenarios and Results:
1) Reform and Gradual Convergence: Fiscal transfers from South to North would reduce investment and consumption in South.
2) Managed Chaos in North Korea: Absorbing the workers from North in the short run is not needed but losing the gain in potential output is more costly in the long run.
3) Chaos in North Korea and Crisis of Confidence in South Korea: A huge negative impact on the South Korean economy

3. Summary (2) North Korea’s GDP will quickly catch up after unification:
Convergence + Transfer: 150%dev in 2040
Convergence: 140%dev in 2040
Chaos + No migration: 45%dev in 2040
Chaos: 38%dev in 2040
Chaos + Crisis: 25%dev in 2040
New Input-Output Table for North Korea

4. Comments
1. New Input-Output Table for North Korea, using Vietnam’s 2011 IO Table.
 Vietnam is a centrally planned economy, just like North Korea: it explains that 91.6% of the government expenditure in NK is used for the final demand for the services sectors, while 93.1% in Vietnam.
However, the Vietnamese economy has been actively engaged with global value chains in East Asia after being a member of the WTO in 2007.
Unlike Vietnam, the North Korean economy still remains closed, having very limited trade activities in East Asia.
Even though North Korea’s industrial structure would be similar to the Vietnamese in 2011, the industrial impact of the unification process in North Korea would be different from the Vietnamese channels, because Vietnam was actively participating into the GVCs in East Asia in 2011.

5. Comments 2. How to interpret results of GDP in South Korea over cases?
Convergence: almost 0.0%dev in 2040
Convergence + Transfer: -0.23%dev in 2040
Chaos: almost 2.0%dev in 2040
Chaos + No migration: -0.5%dev in 2040
Chaos + Crisis: 2.5%dev in 2040
Convergence (or peaceful unification): not much benefits to South Korea?
Chaos cases: turmoil in the SR, but greater benefits in the LR
Migration from North Korea: An alternative solution for South Korea to overcome problems of the aging society?

6. Comments
3. Migration: What if we consider remittance from North Korean workers to North Korea?
 North Korean workers in South Korea would spend their income within South Korea.  South Korea’s GDP
North Korean workers in South Korea would send part of their income to their families, who stay in North Korea.  North Korea’s GDP
If North Korean workers allowed to send their money to North Korea, trajectories of GDP in South and North would be different.

7. Comments
4. More Discussions Needed: Chaos and Crisis in NK and SK - Results for South Korea
Double-Dip in consumption?
Logic?
An initial shock
And then private consumption will fall to finance fiscal transfers and investment up to 2025.
However, this is not happening in case of Chaos in NK only. Why?: The crisis in SK will generate a huge negative impact of the initial shock.