Goldman Sachs: A unified Korean economy could surpass Japan's, Germany's
Friday, October 9, 2009 E-Mail this story Free Headline Alerts
East-Asia-Intel.com
The economy of a unified Korea could be larger than that of Germany or Japan over the next three to four decades, U.S. investment bank Goldman Sachs said in a recent report.
South Korea is now Asia's fourth-largest economy while North Korea is one of the world's poorest nations.
"We project that a united Korea could overtake France, Germany and possibly Japan in 30 to 40 years in terms of gross domestic product, should the growth potential of North Korea be realized," the report says.
North Korea's abundant and competitive labor force, its room for creating synergies with South Korean capital and technology, and its productivity potential are factors that could fuel growth if appropriate reforms and investments were carried out, the report says.
"The North Korean economy is at a crossroads: growth has stagnated and the planned system is near collapse, but it has large untapped potential, including rich human capital, abundant mineral resources (valued at around 140 times 2008 GDP) and significant room for productivity gains," the report said.
North Korea's economy expanded for the first time in three years in 2008, according to Seoul's Central Bank. The North's GDP stood at 21.5 trillion South Korean Won [$16.7 billion] in 2008, compared with 20.7 trillion Won in 2007 and 21.2 trillion Won in 2006. But it was below where it stood at the end of the 1980s, it said.
On the basis of nominal gross national income, the North's economy was just 2.7 percent that of South Korea's last year, widening a gap in wealth between the two rivals, the bank said.
The North's per-capita income came to 1.17 million South Korean Won ($910), accounting for 5.5 percent of the South's.
The two Koreas have been separated since shortly after the end of the Japanese occupation of the Korean Peninsula (1910-1945). Investors and analysts have viewed North Korea as threat to the South's growth, saying heavy reunification costs could burden the South Korean economy.
Seoul's state-run think tank, Korea Institute of Public Finance recently said that a sudden reunification of the two Koreas will significantly increase the fiscal burden for the South because of the huge income disparity between the two sides.
Unification of the two Koreas would raise the tax bill for South Koreans by the equivalent of 2 percentage points annually for 60 years, it said. The income gap between the two Koreas has widened, with the income of South Koreans reaching 17 times those of North Koreans in 2007, up from six to eight times in the early 1990s, it said.