Avoiding the Apocalypse: The Future of the Two Koreas

by Marcus Noland

Overview

On the Korean peninsula one of the greatest success stories of the postwar era confronts a famine-ridden—and possibly nuclear-armed—totalitarian state. The stakes are extraordinarily high for both North and South Korea and for countries such as the United States that have a direct stake in these affairs. This study, the most comprehensive volume to date on the subject, examines the current situation in the two Koreas in terms of three major crises: the nuclear confrontation between the United States and North Korea, the North Korean famine, and the South Korean financial crisis. The future of the peninsula is then explored under three alternative scenarios: successful reform in North Korea, collapse and absorption (as happened in Germany), and "muddling through" in which North Korea, supported by foreign powers, makes ad hoc, regime-preserving reforms that fall short of fundamental transformation.

Product Details

ISBN-13:	9780881323030
Publisher:	Peterson Institute for International Economics
Publication date:	06/01/2000
Sold by:	Barnes & Noble
Format:	eBook
Pages:	456
File size:	3 MB

About the Author

Marcus Noland, executive vice president and director of studies, has been associated with the Institute since 1985. From 2009 through 2012, he served as the Institute's deputy director. His research addresses a wide range of topics at the interstice of economics, political science, and international relations. His areas of geographical knowledge and interest include Asia and Africa where he has lived and worked, and the Middle East. In the past he has written extensively on the economies of Japan, Korea, and China, and is unique among American economists in having devoted serious scholarly effort to the problems of North Korea and the prospects for Korean unification.

Table of Contents

	Preface	xi
	Acknowledgments	xv
1	Introduction	1
	Divergent Paths	3
	Three Crises	4
	Prospects for the Future	7
	Tour de Horizon	11
2	The South Korean Economy until 1997	15
	Economic Policy in the 1960s	16
	Economic Policy in the 1970s	19
	Economic Policy under President Chun	22
	The Democracy Pledge and Twenty-five Years of Development	24
	Pre-Crisis Economic Policy, 1987 to 1997	29
	Conclusions	57
3	The North Korean Economy	59
	Organization of the North Korean Economy	61
	Statistical Comparison of the North and South Korean Economies	73
	Crisis Response	82
	International Economic Relations	87
	Current Reforms	133
	Conclusions	140
4	The Nuclear Confrontation	143
	The Energy Situation	143
	The Nuclear Program	145
	The Agreed Framework	151
	The Suspect Site and the Missile Test	158
	Evaluation	166
5	The Slow-Motion Famine in the North	171
	The Food Balance	180
	Food for Peace	182
	The People's Republic of Misery	191
6	The Financial Crisis in the South	195
	Financial Frugality	199
	The Bubble Story	203
	The Crisis	208
	Post-Crisis Developments	221
	Recovery	247
	Conclusions	249
7	The Prospect of Successful Reform in the North	251
	Reform in the North	252
	A General Equilibrium Perspective on Reform	266
	The Likelihood of Reform	281
8	The Implications of North Korean Collapse	285
	The German Experience	286
	Relevance to Korea	295
	A General Equilibrium Perspective on Collapse and Absorption	301
	Conceptualizing the Costs and Benefits of Unification	307
	Dynamic Results	310
	Policy Lessons of the German Experience for South Korea	318
	Thinking Beyond the German Case	320
9	Can the North Muddle Through?	323
	Socialism in One Family	324
	Muddling Through in Our Own Style	333
	Sustainability	342
10	Conclusions	347
	North Korea	348
	South Korea	352
	Other Actors	367
	Final Thoughts	375
	References	377
	Appendix	401
	Index	405
	Tables
Table 2.1	South Korean tariff rates
Table 2.2	Estimate of tariff-equivalents of Korean agricultural NTBs, 1992
Table 2.3	Producer subsidy equivalents, 1997
Table 2.4	Effective and nominal rates of protection, selected sectors, 1990
Table 3.1	North Korea's central plans
Table 3.2	Composition of output, 1992-96
Table 3.3	Government budget balance
Table 3.4	General government revenues, 1996
Table 3.5	Socioeconomic indicators, 1992
Table 3.6	Educational attainment rates
Table 3.7	Distribution of labor force at time of reform
Table 3.8	Capital stock and GDP regressions
Table 3.9	International income and capital stock comparisons, 1990
Table 3.10	Ratio of South Korean to North Korean GDP per capita income, 1990
Table 3.11	North Korean trading partners, 1997
Table 3.12a	North Korean exports by largest commodity groups, 1997
Table 3.12b	North Korean imports by largest commodity groups, 1997
Table 3.13	Aid from the USSR
Table 3.14	Aid balance sheet
Table 3.15	Estimated remittances
Table 4.1	KEDO contributions
Table 5.1	Food balance estimates
Table 5.2	Rice and corn per capita daily rations
Table 5.3	Food for talks
Table 6.1	Volatility of macroeconomic indicators and banking aggregates
Table 6.2	South Korean banks
Table 7.1	Alternative reform scenarios
Table 7.2	Actual and "natural" North Korean trade shares, 1990
Table 7.3	Prospective sectors of comparative advantage
Table 7.4	Prospective sectors of comparative advantage
Table 7.5	Prospective sectors of comparative advantage
Table 8.1	Western goods penetration
Table 8.2	East German relative price
Table 8.3	Inter-German and inter-Korean exchange
Table 8.4	Estimated costs of unification
Table 9.1	Romanian macroeconomic indicators
	Figures
Figure 2.1	Financial development
Figure 2.2	Real interest rates
Figure 2.3	Share of GDP due to top 10 chaebol
Figure 2.4	Purchasing power adjusted real GDP per capita
Figure 2.5	Structure of output
Figure 2.6	Exports and imports as a share of nominal GDP
Figure 2.7	Unionized workers and labor disputes
Figure 2.8	Number of days required for customs clearance of agricultural products
Figure 2.9	Foreign direct investment
Figure 3.1	Estimates of North Korean GDP
Figure 3.2	North Korean trade
Figure 3.3	North Koran arms trade
Figure 3.4	North Korean debt and debt service - export ratio
Figure 3.5	North Korean debt prices in the secondary market
Figure 3.6	Number of South Koreans who visited the North
Figure 6.1	Saving, investment, and the current account
Figure 6.2	Capital inflows by type
Figure 6.3	Unit price of electronics and DRAMS
Figure 6.4	South Korea's nominal exchange rate and stock market changes
Figure 6.5	South Korea's real GDP growth forecast and expected real exchange rate change
Figure 7.1	Model simulation results
Figure 7.2	Food availability
Figure 7.3	Output by sector
Figure 7.4	Relative price of output by sector
Figure 7.5	Percent change in average factor price
Figure 8.1	Capital inflow and exchange rate appreciation
Figure 8.2	External capital flow: composition of output change in South Korea
Figure 8.3	External capital flow: composition of output change in North Korea
Figure 8.4	Rate of convergence and capital investment requirement
Figure 8.5	North Korea: GDP and GNP
Figure 8.6	South Korea: GDP and GNP
Figure 8.7	Factor return equalization
Figure 8.8	South Korean distribution of income
Figure 9.1	North Korean and Romanian growth rates
	Boxes
Box 2.1	The Strange Case of Sausages
Box 3.1	Juche as Theology
Box 3.2	A Tale of Juche Agriculture
Box 3.3	Black, Brown, and Blue Won
Box 3.4	Deadbeat Debtor
Box 3.5	The Narco-state
Box 5.1	Crying Wolf?
Box 5.2	The Issue of Military Stockpiling
Box 5.3	"9/27 Camps"
Box 5.4	Refugees
Box 6.1	Moral Hazard, the Domestic Dimension
Box 6.2	Contagion
Box 6.3	Moral Hazard, the International Dimension
Box 6.4	Shareholder Activism
Box 6.5	The 10-11 Crisis: The Shoe That Didn't Drop

What People are Saying About This

Il SaKong

Il SaKong, Chairman and CEO of the Institute for Global Economics and former Minister of Finance of the Republic of South Korea

. . . (This) encyclopedic coverage of the two Korean economies . . . will be widely read and cited.

Don Gregg

Don Gregg, The Korea Society, and former U.S. Ambassador to Republic of South Korea:

(The paper is) the best I've seen on the subject.

Robert B. Zoellick

Robert B. Zoellick, Former U.S. Undersecretary of State, and White House Deputy Chief of Staff:

Marcus Noland has managed to integrate the political and economic stories of both North and South Korea in one most useful volume. Given the Summit plans, which will be part of an ongoing and complex process, Noland's account offers especially timely insights and guidance.

Joe Stiglitz

Joe Stiglitz, Former Senior Vice President of Development Economics and Chief Economist of the World Bank:

Avoiding the Apocalypse is unique in its breadth and rigor, and essential reading for anyone interested in the future of Korea.

Scott Snyder

Scott Snyder, Asia Foundation, (Seoul, Korea):

. . . Noland (provides us) with an eminently sensible and comprehensive guidebook in anticipation of Korean peninsula scenarios that are by definition extraordinarily uncertain.

Nicholas Eberstadt

Nicholas Eberstadt, American Enterprise Institute:

Avoiding the Apocalypse . . . establishes Noland as one of the most important contemporary authorities on the Korean conundrum. It is original, powerful, and persuasive . . .

Editorial Reviews

Examines the current situation in the two Koreas in terms of three major crises: the nuclear confrontation between the US and North Korea, the North Korean famine, and the South Korean financial crisis. The future of the Korean peninsula is explored under three alternative scenarios: successful reform in North Korea, collapse and absorption, and "muddling through," in which North Korea makes regime-preserving reforms that fall short of fundamental transformation. Noland has been a visiting scholar at the Korea Development Institute. Annotation c. Book News, Inc., Portland, OR (booknews.com)

Booknews

[This] encyclopedic coverage of the two Korean economies... will be widely read and cited.

Il SaKong

Marcus Noland has managed to integrate the political and economic stories of both North and South Korea in one most useful volume.... Noland's account offers especially timely insights and guidance.

Robert B. Zoellick

Avoiding the Apocalypse is unique in its breadth and rigor and essential reading for anyone interested in the future of Korea.

Joseph E. Stiglitz