Munich Personal RePEc Archive

Economic Reform in North Korea: A Dynamic General Equilibrium Model

Bradford, Scott C. and Kim, Dong-jin and Phillips, Kerk L. (2010): Economic Reform in North Korea: A Dynamic General Equilibrium Model. Published in: Journal of Economic Policy Reform , Vol. 14, No. 4 (2011): pp. 321-332.

This is the latest version of this item.

[img]
Preview
PDF
MPRA_paper_38247.pdf

Download (200Kb) | Preview

Abstract

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.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.