An Analysis of Causality on the Expansion of Economic Relation and Political Conflict Between North-South Korea
Authors:   Asia-Europe Perspective Association, Kim Jinsoo 
Published: June 2018

The end of Cold Ear has led to a new era of dialogues and cooperation since the 1990’s. Such a trend of the times accordingly has brought about much change in both South and North Korea. South Korea established diplomatic relations with such former enemies as Russia(1990), China(1992) and socialist states in Eastern Europe. North Korea, in contrast, has maintained the strategic goal of constructing a military power, and its diplomatic relations with USA and Japan are getting tougher due to nuclear issues and missile tests. In the past, North Korea heavily depended on Eastern social states for resources including energy. However, discontinued financial and economic support from other socialist nations after the end of Cold War has let North Korea face serious economic crisis, which called for alternative external aid. Many scholars and policy makers, based on the trade-peace theory and an empirical case of German unification, suggested that economic cooperation between South and North Korea should be an important pathway to conflict mitigation and eventually unification on the Korean peninsula. Meanwhile President Roh’s Economic Opening Plan called Seven-Seven Declaration initiated such economic exchanges in 1989. The total volume was $19.66 billion for 25 years from 1989 to 2013. It can be analyzed that South Korea had a little surplus: $9.91billion export and $9.75 billion import. However, the apparent trade plus of 0.16 billion is not real. The reality is that noncommercial trade was $2.93 billion, out of which $2.21 billion was grant-type aid. Thus, it can be safely assumed that North Korea has gained much economic profit from trade with South Korea. Liberalists including Polachek(1980) and Angel(1972) maintain that nations try to restrain conflict with trade partners in order not to lose economic profits. However, North Korea has not stopped military provocations: a set of nuclear tests and missile tests as well as the Cheonan Navy Ship attack in 2010 are clear examples, The present paper conducted a mathematical analysis to identify whether the peace-through-trade theory is an effective way to ease the tension and conflict on the Korean peninsula. Interestingly enough, Trade and conflict were found to be in inverse proportion and the results of the analysis support the liber theory that economic profit enhances peace. The current paper utilized Oneal & Russett(1996, 1997) and Barbieri’s(1996b, 2002) measurement tools in order to examine their economic interdependence between the two parties, According to the former framework of Oneal & Russett’s formula, the results of measurement of the economic interdependence between South and North Korea showed that South Korea’s trade dependence was minimal, though it rose from 0.0048%(1990) to 0.1861%(2009) of its GDP. North Korea’s trade dependence, in turn, increased from 0.0563%(1990) to 7.5288%(2009) and has been recently decreasing. Economic interdependence between South and North Korea still remain low at 0.1% to 0.2%. Trade symmetry reached its top at 7.5288%(2009) from 0.0563% (1990) and has lowered to 3.7002% in 2013. Trade portion between two nations expresses relative importance to each economy. Using Barbieri’s formula, South Korea’s trade share was 0.01%(1990), peaked at 0.2462% (2007) and has recently decreased. North Korea’s trade share increased from 0.3108%(1990) to 37.9405%(2007) and has recently decreased. Trade salience expressing relative importance increased from 0.0558%(1990) to 3.0563% (2007) and has also decreased recently. Trade symmetry has gradually decreased from 99,699% (1990) to 62.3057%(2007). Economic interdependence increased from 2.3587%(1990) to 13.8135%(2009) but has been slightly decreasing since then. In sum, the inter-peninsular trade is a crucial factor to North Korean economy: it accounts for 7 to 8% of its GDP and 30% to 40% of its total trade.