Korean unification may cost South 7% of GDP: Finance Ministry

Unification of the two Koreas could cost the South up to 7 percent of annual GDP for a decade though the South would benefit in various ways such as cheap labour and the North's resources, South Korea's Finance Ministry said on Wednesday.

Korea has been divided since the end of World War Two and the Stalinist North and capitalist South have been fierce rivals since the 1950-53 Korean war.

But both Koreas see themselves as the rightful leaders of the Korean people and while there would appear to be no chance of unification in the immediate future, people in both Koreas harbour that hope.

The Finance Ministry said in a report on mid- to long-term policy-making strategy that if the two Koreas unified within the next eight years, South Korea would likely pay from one to seven percent of its annual gross domestic product (GDP) every year for 10 years.

"Unification will contribute to the expansion of the economy's potential growth through increased labour, investments, production and economic cooperation," the ministry said in the report.

Seven percent of South Korea's GDP last year of 1,237 trillion Korean won ($1.15 trillion) would be 86.6 trillion won ($80.62 billion).

The estimates reflect the costs as seen in the short-term, or until 2020.

Though relations between the North, which has twice tested a nuclear device, and the South have been particularly bad over the past few years, they could soon improve.

South Korea's conservative president-elect, Park Geun-hye, has said she could hold talks with North Korean Kim Jong-un but she wants the South's isolated and impoverished neighbour to give up its nuclear weapons programme as a precondition for aid, something the North has refused to do. Park takes office in February.

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The South Korean government has yet to release a formal estimate for the cost of unification. The Finance Ministry's estimate was based on projections by research institutions. However, research outsourced by the Unification Ministry in 2011 estimated it would cost South Korea a total of 371.5 trillion won to 1,253.5 trillion won if unification occurred by 2020.

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