An Institutional Perspective
Chapter 7: North Korea’s Economic Reform and Inter-Korean Economic Relations
7. North Korea's economic reform and inter-Korean economic relations 7.1 INTRODUCTION A critical issue for the Korean Peninsula is how to maintain peace and prosperity. Together with a host of geopolitical variables such as the six-party talks on nuclear non-proliferation, the North Korean economy is critically important not only for peace and prosperity on the Korean Peninsula but also for the South Korean economy. The North Korean economy also vindicates the importance of formal institutions in economic development; its economic difficulties are largely due to its institutional failure. The North Korean economy experienced consecutive negative growth over the 1990-98 period followed by minimal annual growth until 2005, and again substantial shrinkages over the 2006-07 period. To revitalize its stagnant economy, North Korea undertook its most ambitious economic reform policy in July 2002. A number of questions arise as to the nature of the economic reform, its prospects and its impact on inter-Korean economic relations. Inter-Korean economic relations commenced in 1988 and expanded throughout the 1990s, predominantly at the initiative of South Korea. The impetus for inter-Korean economic relations intensified in the late 1990s with the . election of the Kim Dae-jung administration in the South. Inaugurated in 1998, President Kim's 'Sunshine Policy' was predicated on the view that mutual economic interests could provide the basis for a minimization of political and military provocations, for reconciliation and cooperation, and for the ultimate unification of the two Koreas (Lee and Yoon 2004). The Roh Moo-hyun government carried on its own Peace and Prosperity...
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