Economic Relations in North and South Korea

North and South Korea have historically been involved in conflict due to various economic, political and social differences. In short North Korea is a totalitarian state run by the ruling regime. North Korea has made significant efforts to isolate its citizens from the outside world including South Korea. South Korea’s government differs from the North in that it is a Republic, having had several successful elections. Additionally, South Korea has much better ties in the international community and to the western world than the North. Due to the practice of isolation, North Korea rarely trades with other states. While China is debatably one of North Koreas closest international ties, North and South Korea were able to come to a trade agreement of sorts with the Kaesong Industrial Park


Source: BBC

The Kaesong Industrial Park is located in the Demilitarized Zone (DMZ) between the North and the South, established in 1953 when the states were divided. The DMZ serves as a “ceasefire line” as result of the peace agreement signed during the Korean War (meaning technically the North and South are still at war). The Kaesong Industrial Park was created to try and facilitate peaceful trade between the North and South. At the industrial park, South Korean businesses create factories and use labor from North Korean workers. This allows South Korea to benefit from cheap labor and the regime in North Korea to gain currency from the wages. In 2010, the south banned trade with the North when the North sunk a South Korean ship. This conflict escalated into North Korea threatening nuclear action against the South and the United States. However, despite the ban and conflict, Kaesong was excluded from the ban and was largely supported by both sides due to the positive economic benefits. Through the conflict, the industrial park stayed open until North Korea pulled its workers from the industry in 2013.

The Kaesong Industrial Park was recently reopened after significant negotiations between the North and South. South Koreas main hesitation with entering into a new agreement with North Korea is that they are not trustworthy and have a history of being unpredictable. Kaesong is currently functioning again but disagreements continue to arise. Most recently, North Korea has requested an increase in wages for their workers, which South Korea is not very willing to agree to.

The relations between North and South Korea are an example of how two countries with conflicting political interests can engage in trade when it has significant benefits to both sides. Even when military conflict increased, the countries tried to maintain economic relations. Relating back to class material, we may suggest that while there are other contributing factors, the economic relations between North and South Korea may be deterring more significant conflict and/or war. We should also notice the issue of trust between the two countries. Although they engage in economic relations, North Korea still took military action against South Korea and eventually took their workers out of the factories. This established a sense of uncertainty and has been reflected in South Koreas responses to reopening the Kaesong Industrial Park.



5 thoughts on “Economic Relations in North and South Korea

  1. First of all, I felt like I was being yelled at because of the font size. Secondly, how does North Korea operate in the industrial park? They have a policy of cultural isolation so the North Korean people will remain indoctrinated to the government. Is there any mingling between north and south Koreans at the park? It sets a good precedent that shows that the two can have positive relations, even if they are strained.


    • Hi Gavin,

      Thanks for your comment. Regarding the font, it looks normal sized on my computer but this is my first time using wordpress so please let me know if you have any suggestions on how to fix why my post may look different to you.

      The industrial park is located on the North Korean side of the demilitarized zone however the factories have more of a South Korean influence. The walls of the factory do not display propaganda but rather posters about safety practices. Additionally, ping pong tables are located within the park with ping pong balls displaying the word “peace”. There are 151 South Korean factories and over 50,000 North Korean workers. The factories are run by South Korean managers so there is interaction between people of the North and South that is described as cordial but kept to a minimum. In an effort to keep the separation, managers from the South and worked from the North are required to dine separately. Some South Koreans live at the park while other commute everyday over the border (business insider).

      This is a really great question. The way this park is run is fairly different to North Korea’s normal practices of isolationism with there citizens. I would assume that despite the absence of propaganda and allowance of interaction between citizens of the North and South that it is not considered a threat to the North Korean regime. Due to North Korea’s minimal trading, the benefits of Kaesong seem to outweigh the threat of North and South Koreans mingling.

      If you’d like to read more, I found this information on the below site:


  2. I never knew about the mutual industrial park but hopefully it can help bridge the gap between the two countries. It has definitely had a rocky start during its inception but like with the start of trade between China and the U.S. in 1970’s maybe it will foster some economic interdependence. After that then political relations may improve and further help diplomacy between both North and South Korea.


  3. As jhawkins1301 mentioned, I also hope industrial park “Kaesong” would help to solve problems, however, unpredictable behaviors of North Korea historically, such as a deadly attack on Yeonpyong island and Cheonan submarine, South Korea will never forgive them at all. North Korea talk about the peace treaty at the summit, but they prepare for the war. The conflict between two countries would not fix easily; it is hard to respect for positive future relationships.


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