Effects of Reunified Economy
The Korea Institute for International Economic Policy (KIEP) held a seminar in Seoul on Nov. 5 on inter-Korean economic integration and economic cooperation in Northeast Asia. There, University of Seoul Professor Sung Han-kyung predicted that gradual economic integration between the two Koreas would increase North and South Korea’s GDPs by 16 and 1 percentage points each year between 2016 and 2030, respectively.
The professor suggested a method for gradual economic integration, by saying that the two Koreas conclude a Comprehensive Economic Partnership Agreement (CEPA) and participate in the Trans-Pacific Partnership (TPP) somewhere between 2015 and 2030, before complete economic integration through South Korea’s expansion of its FTAs to the North. “Japan will benefit the most during the course, but China might be affected as South Korea replaces it, at least in part, in trade relations between the North and China,” he said.
“At the same time, the number of economically active North Koreans is likely to increase a lot, as the numbers of South and North Korean soldiers are cut from 640,000 to 330,000 and from 1.19 million to 170,000 in proportion to the population, with the scale of the military suitable for self-defense during the economic integration estimated at 500,000,” he said. He also mentioned the decline of foreign debt interest following reduced North Korean risks and significant cuts in national defense spending as two of the other advantages of consolidation.
Korea University Professor Kang Moon-sung, in the meantime, proposed a 10-year plan for inter-Korean economic integration there. “This plan is divided into the first three years for tariff elimination, free investment and phased labor market opening, the fourth to seventh years for free service trade, preparation for currency integration, and establishment of economic zones for the better utilization of North Korean human resources in the South, and the other three years for complete financial consolidation and free labor movement,” he explained. He contined, “South Korea’s GDP is expected to increase by 2.5 percentage points and North Korea’s by 6.8 percentage points once the integration is completed and the Korea-China-Japan FTA is signed.”
“Unified Korea is capable of coordinating between the superpowers in their race for economic and military hegemony and promoting their cooperation so as to address the security dilemma in Northeast Asia and even the denuclearization of the North alone will bring great advantages to the surrounding countries,” Seoul National University professor Jun Jae-sung commented, adding, “I would like to put forward a realistic coordination strategy and a regional order conversion strategy as reunification strategies, in which the former is about Korea acting as a coordinator to get the consent of the four neighboring countries on inter-Korean reunification and the latter is to turn the regional order in Northeast Asia to peaceful multilateral cooperation during the unification process.”
Jin Seung-ho, director general for international economic cooperation at the Ministry of Strategy & Finance, also participated in the seminar as a panelist and said that his ministry as well as the Korean government is examining various possibilities of the unification. “The reunification means the opening of a large domestic market to help tide over the persistent low growth of the global economy,” he remarked, continuing, “We are already running a team to analyze the long-term benefits and costs of the unification and we are particularly interested in economic cooperation in Northeast Asia based on the Greater Tumen Initiative.”