A unification cost on the Korean peninsula should play a key role in the long-

term fiscal estimation. Therefore, it is very important to review previous research on estimate of the unification cost. Most previous research mainly focused on German case that financed from budget in the form of transfer payment to narrow the income gap. However they have problem with calculating cost of potential unification with North Korea because they did not consider whether North Korea can absorb enormous investment from South. The unification cost basically means input of material resources. Therefore, if North Korea is not eligible to digest immense investment, investment above North Korea’s capacity cannot be operated in the most efficient manner. Therefore, we should devise a new method to estimate unification cost more realistically.