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The Effects of Inter-Korean Integration Type on Economic Performance: The Role of Wage Policy

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  • Sung Min Mun
  • Byoung Hark Yoo

Abstract

This paper analyses the effects of various possible types of inter-Korean integration on economic performance in the northern part of Korea after reunification, focusing on the role of wage policy. The wage policy of reunified Germany is generally said to have been one of the major reasons for the increase in unification costs there, because it led to East German worker wages in excess of their productivity level. To reduce the costs of unification, Korea therefore needs to apply wage policies different from reunified Germany's and from South Korea's, which requires a new type of integration. Against this backdrop, this paper classifies the integration types into three -- a unitary state, a federation, and an SAR (Special Administrative Region) -- and analyzes their relative economic effects under the assumption that each type is accompanied by different wage policies. According to this analysis, the federation type shows unemployment and growth patterns similar to those observed in East Germany, the unitary state type higher unemployment and lower growth than in East Germany, and the SAR type lower unemployment and higher growth.

Suggested Citation

  • Sung Min Mun & Byoung Hark Yoo, 2012. "The Effects of Inter-Korean Integration Type on Economic Performance: The Role of Wage Policy," International Economic Journal, Taylor & Francis Journals, vol. 26(3), pages 447-470, September.
  • Handle: RePEc:taf:intecj:v:26:y:2012:i:3:p:447-470
    DOI: 10.1080/10168737.2012.707869
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    Cited by:

    1. Moon, Weh-Sol & Mun, Sung Min & Lee, Jong-Kyu, 2018. "Macroeconomic impact of Korean reunification: The role of factor market opening," Journal of Asian Economics, Elsevier, vol. 58(C), pages 36-58.

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