Economic Reform in North Korea: A Dynamic General Equilibrium Model
This paper examines the impact of hypothetical market reforms in North. We build a dynamic general equilibrium model and simulate multiple reform scenarios. We first construct a baseline model which mimicks the current command economy. In this scenario the government allocates output in an inefficient way and simulated economic growth is negative. We next model a semi-market transition that allows producers choices regarding the distribution of available capital. However, total capital is still chosen by the government. Lastly, we consider two scenarios with full market reform allowing for the usual market mechanisms derived from consumer utility maximization, firm profit maximization, and market clearing prices. In one scenario we keep government investment in public infrastructure unchanged at the low baseline level. In the other we drastically increase the rate of infrastructure investment so that it matches that of South Korea. In all we maintain a closed economy assumption and a constant size for the military. Our simulations show little hope for the North Korean economy without a significant increase in infrastructure. Although all of the reforms raise the level of output and consumption per capita, only with significant increases in infrastructure investment does output growth change from negative to positive.
|Date of creation:||Jan 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Phillips, Kerk L., 2010. "A Dynamic General Equilibrium Analysis of Japanese & Korean Immigration," MPRA Paper 23501, University Library of Munich, Germany.
- Marcus Noland, 2000. "Avoiding the Apocalypse: The Future of the Two Koreas," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 94, December.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:23498. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.