Due to a huge economic gap that opened up between South and North Korea after nearly seven decades of division in the Korean peninsula, it is expected that economic integration between South and North Korea would naturally give rise to a number of issues in political, economic, social, and cultural areas. Therefore, to analyze those issues and the path of economic integration between South and North Korea with regard to reunification of the Korean peninsula, this research aims to propose strategies for gradual economic integration between the two Koreas, by analyzing the major issues in economic integration, such as trade and investment, currency integration, and utilization of human resources; and assess their impact on the regional production networks and the economic cooperation process in Northeast Asia.
In Chapter 2, we theoretically prove that the current situation in the Korean peninsula, where many political barriers to trade exist, is Pareto-inefficient; and that it can achieve a Pareto-efficient situation by attaining institutional economic integration enabled by mutual agreement between South and North Korea. Based on the theoretical analysis and case studies on Germany, China and Hong Kong, China and Taiwan, Vietnam, Yemen, and the European Union, we proposed basic directions that economic integration between South and North Korea needs to follow: gradual approach to economic integration, separation of economic cooperation and integration from military and security issues, construction of an institutional framework for the economic integration, role of the private sector, gradual integration of currencies of South and North Korea, and establishment of a mechanism of political ties and stable decision-making process.
In Chapter 3, we prove that peaceful inter-Korean relations will boost trade and investment between South and North Korea. However, the pattern of expansion of trade and investment through economic integration is dependent upon differences in economic systems and industrial structures; and on competitiveness of companies of South and North Korea. Also, maintaining peace between South and North Korea is a prerequisite for them to improve efficiency of economic transactions. After that, it is necessary to build an institutional and practical framework in support of a market-oriented system, creation of dispute settlement procedures, and operation of special economic zones in order to facilitate trade and investment between South and North Korea.
In Chapter 4, we proposed a concrete plan to gradually integrate currencies of South and North Korea, by introducing the OKU (One Korea Indexed Unit of Account) linked with real values. Based on previous cases in Germany and the EU, it is necessary for South and North Korea to gradually integrate two currencies and hence introduce a new unit of account, such as the OKU, so that problems such as the timing of introducing a single currency and the ratio of converting two currencies, can be solved in market-oriented fashion. Therefore, we can minimize the uncertainty of the conversion ratio that may come from the process of integrating two economies, and ultimately lead the real economies to a soft landing following the process of economic integration.
In Chapter 5, this study analyzes how human resources in transition countries have responded to the direction and pace of economic transition, focusing on income, productivity, firms’ utilization, and so on. Human resources in North Korea would be positively evaluated due to a lower linguistic barrier and higher productivity compared to China and Vietnam. Therefore, we expect North Korea to be fairly well- endowed with human resources in terms of productivity and vitality of its population. However, it also has limitations, such as difficulty in understanding a market-oriented system and overcoming work intensity and technological gaps after the economic integration. Therefore, it is necessary to consider the following preconditions to effective utilization of human resources in North Korea and maximization of benefits from the economic integration: make visible progress in economic integration by setting clear goals, design concrete plans and gradually integrate the economies; achieve consensus on minimum wage levels and conditions for wage increases based on effective market-oriented coordination; consider plans to expand global cooperation among countries in East Asia to enable the North Korean work force to better understand the market system; and establish special economic zones in various areas, where influence of established powerholders are circumscribed, in North Korea.
In Chapter 6, it turns out that China's impact on production activities will decrease but the impact of Korea will increase, and hence the global impact will decrease by US$ 330 million. Based on this analysis, we need to consider two strategies for the economic integration as follows: initially focus on industries where North Korea has a comparative advantage over countries in Northeast Asia; and secure enough budget and funds to meet the costs of economic integration, and consider South Korea’s foreign direct investment in Northeast Asia as a private fund and official development assistance (ODA) and Inter-Korean Cooperation Fund as the public fund.
In Chapter 7, we analyzed how the economic integration between South and North Korea will affect economic cooperation in Northeast Asia. It turns out that economic integration between South and North Korea will benefit the two economies, and real GDP in North Korea will increase by 5.9%. In addition,  economic integration will have minimal impact on neighboring countries like China and Japan. However, North Korea will be worse off when North Korea does not integrate with South Korea and does not participate in economic cooperation in Northeast Asia. In addition, in the scenario where South and North Korea integrate with each other and China, Japan, South Korea, and North Korea form a regional trade agreement, all countries involved will be better off.
In Chapter 8, after summing up all analyses conducted in the study, we propose a Comprehensive Economic Integration Agreement (CEIA or One Korea Agreement) as an institutional framework for gradually integrating South and North Korea. In addition, we suggest a carry- forward ‘Ten-Year Economic Integration Plan’ for gradual economic integration between South and North Korea. It is expected that we can minimize the adverse effects and disorder from the economic integration through the CEIA and ‘Ten-Year Economic Integration Plan’ as proposed in this research. In addition, even though this research has focused more on the gradual economic integration rather than a rapid one, it would be impossible to rapidly integrate the two economies over all sectors when the economic integration proceeds in a rapid way. Therefore, some findings of this research would be applicable to rapid economic integration between South and North Korea.