The Peace Effects of Inter-Korean Trade and the Political-Economic Separation: Analysis of the Reciprocal Effects of Inter-Korean Relations and Inter-Korean Trade

Abstract

This paper empirically examines the relationship between inter-Korean trade and inter-Korean relations over the past three decades. It asks two questions: (1) Does inter-Korean trade contribute to improved inter- Korean relations and peace on the Korean Peninsula? (2) Does improved inter-Korean relations lead to increased inter-Korean trade? The study employs a time-series causal relationship analysis methodology to answer these questions. The findings show that during the progressive government’s reign, inter-Korean trade was not impacted by inter-Korean relations. This is due to the implementation of a political-economic separation policy towards North Korea. Moreover, the increase in general trade and processing on commission did enhance inter-Korean relations, reflecting the “inclusive policy” aimed at achieving peace on the Korean Peninsula through inter-Korean trade. In contrast, during the conservative government’s reign, inter-Korean relations had a direct impact on inter-Korean trade, with deteriorating relations leading to a significant decrease in trade. This was due to the implementation of North Korea policies that were linked to politics and the economy.