| Title | Unification Costs Based on Different Inter-Korean Exchange Scenarios and Subsequent Implications | ||||
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| Views | 1773 | Date | 2015-12-07 | ||
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Unification Costs Based on Different Inter-Korean Exchange Scenarios and Subsequent Implications This report examines the unification cost that will be incurred based on three unification preparation scenarios for ten years between 2016 and 2025 under the assumption that a peaceful unification will happen in 2026. The three inter-Korean exchange and cooperation scenarios are as follows: first, limited exchanges and cooperation at the current level (Scenario 1); second, the expansion of active humanitarian aid for North Korea (Scenario 2); and third, the promotion of economic investment including SOC (Scenario 3). Unification cost is defined as the cost required to boost the North’s income level to 66% of the average income of the South. Given the per capita income gap of 68.2% between Ulsan and South Jeolla Province in South Korea, the unification cost will begin to be considered as a policy cost to narrow regional inequalities when the North’s income level reaches two-thirds that of the South. According to the analysis, Scenario 3 is assessed to be the fastest way to raise the income level of North Korea for the 10 years from 2016, while also incurring the lowest unification cost. For the North’s per capita real GDP projection after unification, Scenario 3 reaches 66% in 2060 from 11% in 2026 compared to South Korea, while Scenario 2 increases to 57% from 7% and Scenario 1 to 38% from 4% during the same period. The items for the unification cost estimation include major mandatory spending and investment costs in social welfare, and the allowances and beneficiaries of social welfare programs are analyzed by reflecting the income gap between the two Koreas and the income growth trajectory of the residents in the North. In terms of the unification cost that will be incurred until the regional income inequality between the South and the North of the unified Korea reaches 66%, Scenario 3 is estimated at KRW 2,316 trillion until 2060, Scenario 2 at KRW 3,100 trillion until 2065, and Scenario 1 at KRW 4,822 trillion until 2076. Among the three different scenarios, scenario 3 is evaluated as the most expeditious means to increase North Korea’s income level and the lowest-cost way towards unification. However, to achieve this, there should be an easing of tension between the two Koreas politically and militarily. Therefore, scenario 2 can be considered as the most reasonable way to prepare for unification even though tensions still exist on the Korean peninsula. In the medium- to long-term, it is essential to boost the productivity of the North to raise its income level and alleviate the financial burden during the unification process. In addition, to secure the foundation for the long-term growth of the North, it is necessary to resolve its labor shortage by delaying the ongoing aging of the population, raise the quality of its labor force while supporting a reliable food supply and offering an improved healthcare environment, and lower the cultural heterogeneity between the South and the North by invigorating people-to-people and cultural exchanges. Humanitarian aid will help the two Koreas build trust, expand cultural and commercial exchanges, and approach each other with openness and understanding. |
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[Korean]