North Korea’s Economic Integration and Growth Potential

Abstract

The growth projections based on cross-country evidence show that North Korea could achieve higher economic growth in the long run if it embarks on substantial policy reforms toward a market-oriented and open economy. Using an empirical gravity model of trade and direct investment, we forecast that, when the two Koreas pursue economic integration and cooperation without military conflicts, North Korea's trade with South Korea can increase by up to 36 percent of North Korea's GDP and its foreign direct investment (FDI) flows from South Korea by up to 6 percent of GDP. Overall, by promoting trade and FDI integration with South Korea, North Korea can boost its GDP growth by approximately 3 percentage points per year. Combined with a market-oriented reform, the North Korean economy could grow by approximately 4.7 percent per year over the coming decades. Conversely, if more rigid sanctions imposed on North Korea become effective, its trade and investment will decrease and its GDP growth rate is expected to fall by approximately 2 percentage points per year.

Determinants of Bangladesh’s Leather Exports to Its Major Trade Partners: A Panel Gravity Model Approach

“…Further, our gravity equations are augmented with dummy variables, predicting the effects of the WTO between Bangladesh and importing countries. WTO membership is expected to increase trade flows between its members due to the profit decreases in trade barriers that include tariffs, quantitative restrictions and other non-tariff trade measures as a result of joining the organization (Frensch, 2014;Larch et al, 2019).…”

Korean Unification: Economic Adjustments under German Assumptions

“…Another approach is using historical cross‐country data to make projections on the impact of economic integration and unification in the Korean peninsula. For instance, Lee and Pyun () adopt an empirical approach by relying on historical cross‐country data on bilateral trade volume and foreign direct investment flows and estimate the effect of economic integration on North Korea's trade and foreign direct investment flows and thereby on its potential economic growth rate.…”

Prospects and Economic Impacts of Korean Unification: An Introduction

“…There are several possible scenarios in terms of reforms in the North Korean economy (see Haggard and Noland (2018), Lee and Pyun (2018), McKibbin et al (2018) and Kang and Park (2018) of this special issue on reforms of the North Korean economy). Although the possibility of a serious military conflict in the Korean Peninsula has been reduced significantly, it could take more than a decade to achieve complete denuclearization of the Korean Peninsula.…”

“…Furthermore, the North Korean leadership may not want to undertake serious domestic reforms and institutional changes that will undermine its iron grip on power. There are several possible scenarios in terms of reforms in the North Korean economy (see Haggard and Noland (), Lee and Pyun (), McKibbin et al () and Kang and Park () of this special issue on reforms of the North Korean economy). First, the North Korean regime may abandon nuclear weapons and embark on comprehensive market‐oriented reforms that open the domestic economy to international trade and investment.…”

“…The first paper, by Lee and Pyun (), quantitatively assesses the future growth potential of the North Korean economy, conditional on economic reform and integration with the South Korean economy. This paper adopts an empirical approach by relying on historical cross‐country data on bilateral trade volume and foreign direct investment (FDI) flows and an empirical gravity model of trade and direct investment, and estimates the effect of economic integration on trade and FDI flows of the North Korean economy.…”