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The Economic Reunification of Korea: A Dynamic General Equilibrium Model

  • Bradford, Scott C.
  • Phillips, Kerk L.

This paper constructs a dynamic specific factors model to examine the impact of the economic reunification of North and South Korea. The model is a compromise between the highly stylized neoclassical models of trade found in the theoretical trade literature, and the highly aggregated models used in dynamic macroeconomics. We find that the policies with the biggest effects on aggregate output are changes in government tax and spending rates, particularly spending on infrastructure. In contrast, we find that both skilled and unskilled wages are much more responsive to the particulars of trade policy, particularly openness to intra-Korea trade and intra-Korea labor mobility. The location of production in a fully integrated Korean economy is determined by the location of infrastructure.

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File URL: https://mpra.ub.uni-muenchen.de/23550/1/MPRA_paper_23550.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23550.

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Date of creation: Feb 2008
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Handle: RePEc:pra:mprapa:23550
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  1. Lawrence J. Christiano, 1998. "Solving Dynamic Equilibrium Models by a Method of Undetermined Coefficients," NBER Technical Working Papers 0225, National Bureau of Economic Research, Inc.
  2. Marcus Noland & Sherman Robinson & Ligang Liu, 1999. "The economics of korean unification," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 3(3), pages 255-299.
  3. Marcus Noland, 2000. "Avoiding the Apocalypse: The Future of the Two Koreas," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 94.
  4. Michael Funke & Holger Strulik, 2005. "Growth and Convergence in a Two-Region Model: The Hypothetical Case of Korean Unification," Quantitative Macroeconomics Working Papers 20505, Hamburg University, Department of Economics.
  5. Jonathan Eaton, 1984. "A Dynamic Specific-Factors Model of International Trade," NBER Working Papers 1479, National Bureau of Economic Research, Inc.
  6. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  7. Albert, Max & Meckl, Jurgen, 1998. "Qualitatively Rational Expectations and Adjustment in the Specific-Factors Model," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 670-82, November.
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