Economic Impacts of Reunifications in Germany and in Korea

Abstract

We measure the evolution of population, investment rates, and total factor productivity (TFP) for East Germany and West Germany around their 1990 reunification to create a model that allows us to consider the economic ramifications of a hypothetical reunification between South Korea and North Korea. The scenarios that we consider suggest that worker migration from the North, a decrease in investment, and a slowdown in TFP growth could exert a substantial negative and persistent effect on South Korea's economy although the North is predicted to benefit from more rapid income growth. We also summarize the economic and policy questions that our quantified model illuminates.