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The microeconomics of North-South Korean cross-border integration

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Title: The microeconomics of North-South Korean cross-border integration
Authors: Haggard, Stephan
Noland, Marcus
LC Subject Headings: Korea (North) - Foreign economic relations - Korea (South)
Korea (South) - Foreign economic relations - Korea (North)
Korea (South) - Economic policy
Issue Date: Jun 2012
Publisher: Honolulu, HI : East-West Center
Series/Report no.: East-West Center working papers. Economics series;no. 130
Abstract: Economic integration between North and South Korea occurs through three modalities: traditional arm's-length trade and investment, processing on commission (POC) trade, and operations within the Kaesong Industrial Complex (KIC). In order, these three modalities are characterized by decreasing exposure of South Korean firms to North Korean policy and infrastructure. Through a survey of 200 South Korean firms operating in North Korea we find that these modalities of exchange matter greatly in terms of implied risk. For example, firms operating in the KIC are able to transact on significantly looser financial terms than those outside it. We find that direct and indirect South Korean public policy interventions influence these different modalities of exchange and thus impact entry, profitability, and sustainability of South Korean business activities in the North. In effect, the South Korean government has substituted relatively strong South Korean institutions for the relatively weak Northern ones in the KIC, thus socializing risk. As a result, the level and type of cross-border integration observed in the survey is very much a product of South Korean public policy.
Description: For more about the East-West Center, see http://www.eastwestcenter.org/
Pages/Duration: 35 p.
URI/DOI: http://hdl.handle.net/10125/42506
Appears in Collections:Economics [Working Papers]



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