Korean Reunification 'Will Cost $5 Trillion'

Estimates about the cost of Korean reunification vary wildly. The government and South Korean and foreign think tanks have so far estimated that it would cost between US$5 million and $1.5 trillion to recover the devastated economy of North Korea (US$1=W1,155). But others say it will cost much more.

In the Wall Street Journal on Sunday, Peter Beck, a research fellow at the Walter H. Shorenstein Asia-Pacific Research Center of Stanford University, speculated, "I estimate that raising Northern incomes to 80 percent of Southern levels -- which would likely be a political necessity -- would cost anywhere from $2 trillion to $5 trillion, spread out over 30 years." This would be between $40,000 and $100,000 per capita if distributed solely among South Koreans.

"Fixing the economy will require new infrastructure, starting with the power grid, railway lines and ports. This alone will cost tens of billions of dollars," he predicted.

"Few of the North's factories meet modern standards and it will take years to rehabilitate agricultural lands," he wrote. "The biggest expense of all will be equalizing North Koreans' incomes with their richer cousins in the South."

Since German reunification in 1990, West Germany has poured $2 trillion into East Germany in government subsidies and investments. At the time of reunification, East Germany's per capita income was one-third of West Germany's, and its population a mere quarter. The two Germanys had engaged in close economic exchanges before reunification.

"North Korea's per capita income is less than 5% of the South's. Each year the dollar value of South Korea's GDP expansion equals the entire North Korean economy. The North's population is half the South's and rising thanks to a high birthrate. North and South also barely trade with each other," Beck said. "To catch up to the South, North Korea will need more resources than East Germany required if living standards on both sides of the peninsula are to be close to each other."

Beck suggested that international institutions like the World Bank as well as South Korea and the U.S. should "think about where that money will come from and how it should be spent to minimize the risk of wasting it in post-reunification confusion."

"Building a modern economy in North Korea would be a wise investment in peace and prosperity in North Asia," he stressed.