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Toward Korean Unification: A Policy Proposal for Investment in North Korea

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  • Kwang Soo Cheong
  • Chung H. Lee

    (Department of Economics, University of Hawaii at Manoa)

Abstract

South Korea became a net-provider of foreign direct investment in the late 1980s, and is now emerging as a major source of foreign direct investment in ASEAN and China. In general, the economic gains that the host country realizes from foreign direct investment are not a factor that the home country should take into account in deciding its policy on outward investment. The case of South Korea is, however, an exception to this general principle because of the possibility of the eventual unification of two Koreas. Given that the unification cost borne by South Korea will decrease as the North Korean economy improves, the South Korean government should actively encourage South Korean investment in North Korea by offering appropriate incentives. The rational for this policy is that the beneficial effect of investment on the North Korean economy is not a factor taken into account by private investors. Policy measures in this direction include the provision of a corrective subsidy for North Korea bound investment.

Suggested Citation

  • Kwang Soo Cheong & Chung H. Lee, 1996. "Toward Korean Unification: A Policy Proposal for Investment in North Korea," Working Papers 199610, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:199610
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    References listed on IDEAS

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