An Analysis of the Political Effect of Economic Trade on South-North Korea Relation
Authors:   Asia-Europe Perspective Association, Kim Jin-Soo , Lee Han-Sung 
Published: June 2018

Liberalists has declared that economic trade brings about political cooperation and peace between two countries through enhancing the economic benefits, promoting conversation, and removing misunderstanding. On the basis of this declaration, the policy on North Korea has been pushed ahead by the Korean government which tries to transform the relationship with North Korea from mistrust and hostility to reconciliation and cooperation. It has been twenty three years since the economic trade between South and North Korea began in January, 1989 under President Noh Taewoo which was triggered by the Declaration of July 7 and the North-South Korean Economic Relation Measure of October in 1988. The total turnover between South and North Korea was about 15.9 billion USD during the period from the beginning of January, 1989 to the end of September, 2011, out of which 13.2 billion USD is for commercial trade and 2.6 billion USD is for economic aid. However, the controversy is being aroused in South Korea about the policy on North Korea because North Korea tends to keep hostility towards South Korea through nuclear experiment, blowing up the Cheonan ship, shooting a South Korean tourist in Keumkang Mountain, and shelling of Yeonpyeong Island.
It seems to the realists that the economic trade between South and North Korea brings about reinforcing the North Korean military power and weakening the security in South Korea, which results in hindering the peace in Korean Peninsular. From the point of this issue, this paper aims to analyse the effect of trade and economic aid on easing conflicts between South and North Korea empirically. The result of this study can be summarized as follows. First of all, the increase of total turnover is significantly effective on creating the cooperative relationship between South and North Korea, which means that the increase of total turnover will decrease the conflict index. Secondly, the increase of commercial trade does not significantly affect the conflict index. Thirdly, the increase of non-commercial trade is significantly effective on the conflict index, which means that the increase of non-commercial trade will bring about creating the cooperative relationship between South and North Korea. Finally, the multi-variable analysis shows that rate of change in non-commercial trade is significantly effective on the conflict index, but rate of change in commercial trade is not.
To sum up the results of the empirical analysis, the increase of total turnover and/or non-commercial trade is significantly effective on creating the cooperative relationship between South and North Korea, but not in the case of the increase of commercial trade. In other words, the economic trade between South and North Korea does not necessarily reduce the conflict in Korean Peninsular. In fact, it has been happening in the real world since fifty years ago. Social welfare in North Korea should be enhanced to reduce the conflict in Korean Peninsular through the economic support and trade from South Korea. The amount of social welfare increase in North Korea should be enough to offset the amount of social welfare decrease due to the cessation of the economic support and trade. Therefore, the economic trade between South and North Korea needs to be vitalized more and more so that North Korea be economically dependent upon South Korea.
Limits of this paper, which are left to be studied in the future, are as follows. First of all, it needs to be analyzed how much social welfare has been enhanced in North Korea through the economic trade between South and North Korea for the past twenty three years. Secondly, it also needs to be studied what is the level of dependence of North Korea on South Korea, and whether the economic sanction toward the North Korea of the Lee Myung-bak administration is significantly effective or not.