The Rise and Fall of Inter-Korean Economic Cooperation

Dr. Inhan Kim

What explains the rise and fall of inter-Korean economic relations? The conventional account for the question has been different causal beliefs in engaging North Korea held by different political leaders. That is, liberal presidents such as Kim Dae-jung and Roh Moo-hyun pursued engagement policies with a firm belief that growing economic interdependence with North Korea will promote stability on the Korean Peninsula, while the next two conservative leaders were skeptical. This study puts the conventional wisdom under scrutiny. This study argues that the rise and fall of inter-Korean economic relations has depended on the combination of two external forces: one, the support from the United States and, second, North Korea’s responsiveness to engagement efforts from Seoul. Throughout a decade long liberal rule in Seoul, two Koreas expanded economic ties as Pyongyang needed Seoul’s aid and Washington threw a support. For nine years long conservative rule in Seoul, Pyongyang rebuffed Seoul’s proposals for the expansion of economic cooperation. Instead, Pyongyang waged a series of military provocations and accelerated its nuclear armament. It is also noteworthy that Washington has been increasingly critical of business projects pumping cash into Pyongyang since North Korea’s fifth nuclear test in 2016. The two variables explain why inter-Korean economic relations has not come back to life despite Seoul's return to liberal leadership. Mr. Moon Jae-in, the incumbent leader in South Korea, has certainly pursued economic engagement with North Korea. Kim Jong-un has shown interest in resuming economic interactions between the two. However, the opposition from the United States remains strong. It has insisted that the resumption of inter-Korean economic relations between the two Koreas wait for the denuclearization of North Korea.