The Korean Journal of Economic Studies
Analysis on the Effects of Economic Cooperation between South and North Korea on North Korea’s Economic Growth
Cheol Jong Song (Korea Institute for Health and Social Affairs)Year 2017Vol. 65No. 4
This study constructs a baseline model for North Korea and North Korea’seconomic model based on economic cooperation between South and NorthKorea using growth model. Using the latest data of North Korea, this studysimulates the changes in North Korean economic growth in case of theeconomic cooperation between South and North Korea from 2018. For theeconomic cooperation, we consider fiscal transfer from South Korea toconstruct the infrastructure and to compensate households’ income in NorthKorea, and the imports of investment goods from South Korea to NorthKorea. As results, firstly, for the independent growth of the North Koreaneconomy North Korea’s technological progress should take place througheconomic cooperation. Unless the trade between South and North Korea isaccompanied with the technological progress, the growth effect of import ofinvestment goods on North Korea is temporal. Secondly, the increase ininvestment from the South to the North is essential. The increase in capitalaccumulation in the North raises the marginal products of labor and the realwages. Thirdly, the economic performance in the capital intensive sectors interms of GDP and labor productivity would drive the economic development inNorth Korea.