Academic journal article North Korean Review

An Increasing Inter-Korean Economic Integration: The Case of the Gaeseong Industrial Park

Academic journal article North Korean Review

An Increasing Inter-Korean Economic Integration: The Case of the Gaeseong Industrial Park

Article excerpt


North Korea (the North) of the i990s was associated with images of economic disruption and famine. The North adopted a unique type of command economy based on juche ideology, a system of self-reliance. Along with the rigidity of the planned economic system, the closed nature of the economy was blamed for low industrial productivity, low e[double dagger]ciency, technological backwardness, and, in the end, economic stagnation. Confronted with these economic circumstances, the North has attempted to induce foreign capital, technology, energy resources and intermediate materials. In addition, the country has been trying to overcome its isolation in the world economy by establishing links with South Korea (the South), which is willing and able to provide the capital, technology and management know-how essary for North to overcome its economic di[double dagger]culties. The

North has not only responded positively toward the South, but also appears to be taking specific measures to accommodating. The North's economic opening in the form of a special economic zone was inevitable, considering it has to overcome its prolonged economic hardship. The industrial operation rate has been very low due to ine[double dagger]cient management, outdated technology and a lack of energy resources and raw materials. Although the famine and the worst economic period ended around i998, the North's food shortage and industrial recession have persisted to the present.

Understanding the track record of the business exchanges of the two Koreas can help us in the critical task of finding a way to accelerate the two Koreas' economic transactions. Increased economic cooperation between the two countries will likely lead to economic integration, with the concomitants of market extension, economies of scale, learning curve e∂ects, competition, and trade creation. This paper analyzes the implications of the Gaeseong Special Economic Zone for the two Korean economies.

The Gaeseong Special Economic Zone

The two Koreas are at a historical crossroad of inter-Korean economic cooperation toward integration. The most auspicious aspect of the North's reform is firm commitment to launch joint ventures with the South to aid in the construction of Gaeseong Industrial Park. The Gaeseong special economic zone is an administrative zone with special legal status; it is physically and legally separated from the rest of the North, and under the guidance of market-oriented principles it is provided with economic autonomy.

The North saw an opportunity for economic development in China's model of comparative resources. China's economic growth has been phenomenal due to the mobilization of its dormant labor and site resources with foreign capital and technology (Ge, i999). In 2000, the North and the South agreed to build the Gaeseong Industrial Complex on 26.4 square kilometers of the North's southern border city. city. The project will be carried out in three stages over eight years: one million pyong (one pyong = 3.594 square yards) in the first phase mostly for labor intensive manufacturing sites, i.3 million pyong in the second stage for manufacturing and service industries, and 6.2 million pyong in the final stage for high tech and chemical industries.

The first-phase site is mostly labor-intensive, comprised of textile and leather production, and simple general manufacturing products. Technology-intensive industries are expected to establish a presence only after the third-stage is completed. The third phase is designed to construct an IT industrial complex on an area of one million pyong. In this case, the Digital Industrial Complex in Seoul can be used as a model to calculate the composition of the various industries; electricity and electronics, software, printing and publishing, and textiles and leather.

The Gaeseong Industrial Park is located 60 km from Seoul and i70 km from Pyongyang. Sea and land transposition routes between the North and the South are available. …

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