inter-Korean economic cooperation

South Korea

North Korea

Kaesong Industrial Complex

F59

P33

P45

The paper addresses the topic of inter-Korean economic cooperation. The author describes the development of economic relations between the Republic of Korea and the Democratic People’s Republic of Korea from their establishment to the present day. The focus of the paper is on determining both countries’ underlying reasons for varying their level of engagement in joint business projects. The author argues that South Korea and North Korea established economic cooperation in order to achieve contradictory goals. North Korea decided to engage in economic cooperation with South Korea after the breakup of the Soviet Union. North Korean leaders were hard pressed to secure a new source of income in order to stay in power. South Korea welcomed North Korea’s willingness to cooperate in the hope that gradual changes in the regime would lead to greater openness and democratization. The analysis uses a simple decision model based on game theory. It incorporates strategies of different levels of engagement of both countries and the consequences of their implementation. This model explains past changes in inter-Korean economic exchange and makes it possible to predict future trends.