Latest reunification study puts cost at US$3 trillion

Here is the report (in Korean) on the KFI web page.   Here is that page translated with Google Translate.

The report was also carried in the English language media. 

According to Reuters:

The cost of reunifying the two Koreas, split since shortly after World War Two, would tot up to about 3,500 trillion won ($3 trillion), the Federation of Korean Industries said on Tuesday.

Not one of 20 economists surveyed by the federation expected reunification in the next five years but almost half said it would happen in 10 to 20 years.

Nearly half also said the largest cost associated with reunification would be in efforts to cut the wealth gap between the wealthy South and the impoverished North.

“The costs to minimize the gap between South and North Korea over the long-term are expected to be greater than the initial cost of reunification,” the federation said in its report.

South Koreans earn an average about $19,230 a year while North Koreans earned about $1,065 in 2008, according to South Korea’s Unification Ministry.

Concerns about the costs prompted South Korean President Lee Myung-bak to propose a “reunification tax” last month.

“In the short term the shock to the Korean economy will be great but in the long-term reunification will be positive,” the survey said.

The two Koreas are still technically at war as hostilities in 1950-53 Korean War conflict ended in a truce, not a peace treaty.

Yonhap also covered the report:

Most of the experts also said the divided Koreas will likely be reunified within the next 30 years, according to the survey conducted by the Federation of Korean Industries (FKI), the largest business lobby in South Korea.

The questions raised by the FKI came after President Lee Myung-bak proposed introducing a new “unification tax,” which he said will help lessen the financial burden of reuniting with the communist North.

Of the 20 experts surveyed, 63.1 percent said the reunification of the two Koreas will cost more than that of Germany, about $3 trillion. The amount includes the initial costs of stabilizing the nation following a reunification, but also the costs of eradicating any economic and social disparities between the two Koreas.

Half of the respondents said the country needed to begin discussing ways to pay such enormous costs of reunification, while 20 percent said such discussions must begin immediately.

“It also showed every respondent saw the need for such discussions as no one answered such discussions were unnecessary,” FKI said in a press release.

None of the respondents said the reunification will take place within the next five years, but 95 percent, or 19 out of the people surveyed, said the two Koreas will likely be unified before 2040.

They all agreed the unification with North Korea will be a great burden on the South Korean economy in its near future, but a great opportunity in the long term.

Here are links to previous posts on this topic.

Read the full stories here:
The cost of reunifying Korea? About $3 trillion
Reuters
9/14/2010

Experts say Korean unification will cost over US$3 trillion
Yonhap
9/14/2010

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  • Tom

    “Of the 20 experts surveyed, 63.1 percent said the reunification of the two Koreas will cost more than that of Germany, about $3 trillion.”

    So 12.62 of the 20 experts said it would cost more than Germany …

  • Mike Saunders

    It was a translation mix up most likely. I found from Chosun this quote

    “The total cost of German reunification was estimated at 2 trillion euros between 1990 and 2009. ”

    So probably they meant that the cost of reunification will be 63.1% more than Germany’s and the number who thought that was lost in translation.

  • Michael

    Whatever the real costs of German reunification were, we will never know.
    However a large part of these costs are uniquely German costs and will not play any role in the case of Korea, for instance we had to cover very large amounts paid to the Soviet Union in order to secure the retreat of Soviet troups (not relevant in the case of North Korea).
    Then very major amounts had to be spend in order to protect the (Substantial!) savings-accounts (non-existent in North Korea) of East German citizens in the process of currency exchange. Finally the integration of substantial pension schemes (non-existent in North Korea) cost very large amounts on top of all the required infrastructure investments.
    Thus, I am afraid that the comparison with the case of Germany may be very misleading.

  • Gag Halfrunt

    But the costs of modernising North Korea’s infrastructure (roads, railways, utilities, etc.) will surely be even higher than in Germany.

  • I am no expert on German unification, but it seems to me that the Germans overpaid due to the inflated Ostmark exchange rate conversion. If the North Korean won was fixed to the Yuan, South Korean Won, or Dollar at the black market rate, labor will be pretty cheap, but productivity will also be pretty low since they will have little capital (human or physical).

  • Michael

    Yes Curtis you are absolutely right, the single biggest lump of unification costs was due to the “political” fixing of the exchange rate (particularly impacting on savings as well as on pensions, at the same time “killing” all East German industries).
    I do not agree with Gag Halfrunt: Infrastructure costs will not be necessarily higher in North Korea, as in the case of German reunification (though GDR infrastructure was in much better shape than present day NK) we have in fact NOT IMPROVED that existing poor infrastructure but fully REPLACED the entire infrastructure! So we have opted for the most sustainable (but also most costly) approach.
    However, it also needs to be seen that in the case of Germany that was done with substantial financial help from the EU, particularly with regard to infrastructure!


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