Abstract
Models of South-North Korean economic integration have the problem of circular reasoning. While many studies argue that South-North Korean economic integration would contribute to alleviate security risks in the Korean peninsular, they emphasize the success of any economic model of inter-Korean economic integration is subject to favorable geo-political and security environment. It is a failure in distinguishing between goals and constraints. After identifying three major goals of South-North Korean economic cooperation, this study shows the trilemma among the goals; they are 1) formation of a complete economic community, 2) maintaining independent sovereignty of the two Koreas, 3) promotion of mutual economic interests. The trilemma suggests that it is theoretically impossible to achieve the above three goals at the same time. Only two goals are achievable simultaneously. This study argues that the most practical option is to pursue the combination of goals 2) and 3) considering the complex political and security environment around the Korean peninsular. Recognizing that North Korea is the least developed country in the Northeast Asia region, South Korea's initiatives for inter-Korean economic cooperation should focus on assisting industrialization and integration of the North Korea economy into the Northeast Asian regional production sharing structure. In view of the 'flying geese model' of the sequential industrialization in the region, the least developed economic status of North Korea can partially be explained by its failure to participate in the production network in the region as well as lack of effective implementation of appropriate industrial policy. Therefore, promotion of industrialization of North Korea should be the immediate goal of economic cooperation between North and South Korea. It is an interesting fact that North Korea has rapidly expanded its apparel exports in recent years. It could mean that the North Korean economy is actively responding to the dynamics of international comparative advantage structure, although the production activities are limited to exports to China since the closure of the Gaesung Industrial Complex. The recent increase in apparel export is a starting point for incorporating the Easy Import Substitution fulfilling both domestic and neighboring regional demand of North Korea. It could help integrate North Korea's industry into the production network of Northeast Asia. An immediate policy implication is that the economic cooperation between the two Koreas should focus on facilitating this process and supporting North Korea's industrial policy through South Korea's contribution of capital, technology, and service intermediary inputs.