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Reunification and Economic Development

Waiting room, Pyongyang Airport, North Korea, and Inchon International Airport, South Korea.

Reunification has far-reaching implications for economic development on the Korea peninsula and Northeast Asia region. From the ashes of the Korean War, South Korea has emerged as one of the twentieth century’s great economic success stories. An affluent, globally connected, high-tech society, South Korea is currently the twelfth largest economy in the world with an estimated GDP of U.S. $1.6 trillion.

A bakery in Pyongyang.

North Korea in contrast is a command economy dependent on the support of neighboring China for the majority of its imports and exports. Since the imposition of UN sanctions on North Korea in 2016-2017, China has accounted for nearly 95 percent of global trade with North Korea.  In 2018, China exported $2.22B to North Korea, while North Korea exported $182M of goods to China. In contrast in the same year, China exported some $107B to South Korea, while importing $160B products from South Korea.*

North Korea has suffered chronic food shortages and periodic famine. Crumbling infrastruture and lack of access to quality health care undermine quality of life for North Korean people.  The diversion of essential resources for the development of ballistic missile and nuclear programs has reduced the North Korean per capital income to just U.S. $1,285, compared with an estimated at U.S. $34,000 per capita income in the South.

Reunification would usher in a sea change in the allocation of resources with the threat of military confrontation resolved. North Korea’s reserves of iron ore, copper and zinc, and others far exceed the reserves found in the South, while the North is thought to have rare earth deposits large enough to double the world’s known reserves. South Korean estimates of untapped mineral reserves in the North range from $7 to $10 trillion. According to a Goldman Sachs report, a unified Korea could potentially surpass Germany and Japan and, by 2050, become the eighth largest economy in the world. 

In his 2014 book, Korean Dream: Vision for a Unified Korea, Hyun Jin Moon noted that the labor pool and natural resources of the North complement the technology, capital, and enterprise of the South.

The result over the mid-term would be to push back the current constraints starting to squeeze the Korean economy and provide the boost for a new burst of growth and development. . . . All the countries of the region would benefit as new trade routes would open up and the North Korean regime would no longer be an obstacle that had to be worked around. China could develop its border provinces in cooperation with its Korean neighbor without having to worry about setbacks arising from upheavals in the North Korean leadership and subsequent unforeseen shifts in the rules governing their trade and investment. Russia could pursue a pipeline through the Korean peninsula should it wish without any of the current concerns. Japan, whose trade with North Korea is now minimal because of sanctions, would have a new market for trade and investment.

 “As unification can provide the Northeast Asia region with a fresh growth engine,” ROK President Park told the 2014 World Economic Forum in Davos,” I think unification will be a jackpot not only for South Korea, but also for all neighboring countries in Northeast Asia.” 


North Korea is thought to have rare earth deposits large enough to double the world’s known reserves. Estimates of untapped mineral resources in the North range from $7 to $10 trillion.


Many Chinese and Russian experts recognize the economic potential of a unified Korea, which would enable access to markets and facilitate trade and transportation throughout the region.

“China for a long time has shown strong support for a nuclear-free Korea and peaceful unification, which benefits Korea and is in also China’s national interest,” according to Dr. Huiyao Wang, Founder and President of the Center for China and Globalization. President Xi visited South Korea in 2014 and “endorsed and proposed the peaceful reunification of the Korean peninsula,” Wang said. “So, China is very, very much looking for peace, a peaceful [unification] process without the interference of foreign influence but settled by the people in both North and South Korea.”

The opening ceremony of a rail link to Russia from the North Korean port city of Rajin, Sept. 22, 2013. The port could become a logistics hub if it is linked into the Trans-Siberian Railway. Russia has invested $66 million in upgrades to the dock and nearby infrastructure. Copyright © 1998-2020, RFA. Used with the permission of Radio Free Asia.

 

While Russia recognizes the favorable opportunities of expanding trade and a resolution of security issues in the Far East, the prospect of a unified Korea politically aligned with the United States and Japan remains a serious obstacle from the Russian and Chinese perspective.

* figures compiled by the Observatory of Economic Complexity. North Korea photos: Philippe Chancel/Open Society Foundations