A Small Model of the Korean Economy

by Don Henry


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This Note describes SMOKE (a Small Model of the Korean Economy), a compact analytical tool developed to study economic and defense tradeoffs in the Republic of Korea. SMOKE is a supply model: it focuses on the growth and interaction of the factors of production rather than on the sufficiency of demand to employ these factors. The model suggests that (1) the military share of the GNP in Korea will likely rise over the next decade; (2) GNP growth will gradually slow over the next decade as diminishing returns to capital deepening are encountered; (3) an investment-intensive military buildup dampens economic growth less than a labor-intensive buildup; and (4) the advantages of capital-intensive military forces will grow over time as labor becomes more valuable in the economy.

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