Comparison of the North and South Korean Economies - Research Proposal Example

Research Proposal Introduction: The economic models under which theeconomies of South Korea and North Korea persist are representative of stark contrast which possibly reflects the internal governance of the nations in addition with the foundations of their respective political ideologies. While, South Korea’s economic development in the last few decades has been marked by positive advancements, the same objectives have not been achieved by North Korea. The possibilities that are associated with this outcome are primarily related with the fact that while; South Korea has opted for necessary and substantial measures to establish trading links with partnering nations North Korea strictly maintains what can be identified as a “one of the world’s most centrally directed and least open economies” (North Korea, CIA World Factbook). Given the distinct features of the identified economies, it is evident that the nations’ adoption of economic measures for development is vastly different whereby, the comparison of the said mechanisms may emerge as a contradictory rather than parallel. Objective: The purpose of this research paper is to conduct a comparative analysis of the economies of South Korea and North Korea so as to allow the identification of the measures, mechanisms and models which have been adopted by the states to develop their respective economies. Thus, they key areas of focus for this study are based upon following questions. To what extent have the economies of South Korea and North Korea demonstrated reliance upon state-led development? What has been the role of growth which has been triggered by export relations in the respective nations? What has been the role of political associations and motivations as a pivotal driver of development for the states? To what extent has the economic development or progress in the identified countries been dependent upon the payment of low wages to workers and the availability of cheap human resources? Research Plan: The research plan for conducting this study is based upon the utilization of qualitative and quantitative information on the topic which is available through several resources including scholarly articles, government sources, books and non-academic sources. The examination of content and economic arguments which have been featured in this study has been conducted by adapting a comparative approach that focuses upon understanding the economic functioning of the highlighted nations. Moreover, the study also focuses upon understanding the impact of external changes on the state of the nations’ economies such as the world economic crisis and the effect of global recession amongst other fundamental aspects within the context of the overall economic scenario which has emerged in Asia. 1. Introduction Traditional development mechanisms which were launched in North Korea for the purposes of enhancing the economic conditions of the country comprised of distinct efforts which were conducted separately in each of the decades of the 1950s-1960s, 1970s, 1980s and 1990s (Jo). On the other hand, the drastic economic development which occurred in South Korea from the period of the 1960s to 2000s reflected upon the utilization of an economic model which encouraged citizens to focus upon savings and conducting investments rather than participating in sheer consumerism and consumption (South Korea, CIA World Factbook). In accordance with the aforementioned observation it can be deduced that the two nations have not employed parallel or analogous techniques to enhance their economic prospects as a consequence of inherently distinguishable ideologies on which to base their economic structures. Therefore, as a consequence of the decades of monetary implementations which have contradicted with each other it can be postulated that both North Korea and South Korea share a different stage in the scheme of world economic affairs, which is not surprising for economists and analysts. Given the establishment of a basic structure of the countries’ economies, the purpose of this paper is to conduct a comparative analysis of the identified economic structures by specifically focusing upon the question of ‘how have the nations of South Korea and North Korea conducted the development of their economies?’, the explication of this question is based upon the analysis of several interlinked factors and issues that are associated with the examination of economic theory, therefore, the subcategories of economic considerations which have been assessed with regard to this topic include the following questions: To what extent have the economies of South Korea and North Korea demonstrated reliance upon state-led development? What has been the role of growth which has been triggered by export relations in the respective nations? What has been the role of political associations and motivations as a pivotal driver of development for the states? To what extent has the economic development or progress in the identified countries been dependent upon the payment of low wages to workers and the availability of cheap human resources? 2. Discussion 2.1 Historical Policies for Promoting Economic Development in South Korea and North Korea The traditional state of North Korea’s economy before the period of 1950s has remained rather weak and this observation prompted analysts and economists to suggest the implementation of policies which would encourage the acquisition of external capital for the purpose of attaining improvement and progress (Jo). In alignment with the proposal of such suggestions, North Korea chose to execute a range of policies and mechanisms to ensure that it is able to acquire capital through external means which could in turn fund economic growth. Therefore, in the period between 1950 and 1990, the nation established collaboration with various countries to attain the designated goals. For example, the timeframe lasting between the decade of the 50s and the decade of the 60s was focused upon seeking assistance from nations which shared the political, social and economic ideology of North Korea and believed in socialism (Jo). Following this period and with the advent of the decade of the 70s the country focused on advancing economic progress through the acquisition of loans which were largely obtained from Western lenders, however, the effect of this policy failed to render a positive impact on the nation therefore, the economic aims of the country were redesigned and refocused in the 1980s whereby a comprehensive scheme was designed by the government and concerned agencies to launch a framework which would aid North Korea in attracting foreign direct investment (FDI) (Jo). Consequently, owing to grave concerns that the country’s reliance on external capital would enhance its debt and also diminish any possibility of promoting self-sufficiency, North Korea sought to channel its resources upon the development of Special Economic Zones or SEZs, a move which was initiated by the state in the 1990s (Jo). According to Gale, the establishment of SEZs in North Korea in addition with a desire to attract foreign direct investment can be regarded as a critical moment in the nation’s economic history because it corresponded with a period in which the North Korea continually began to venture into the realm of establishing a market economy and adhering to the characteristics of an analogous economic model. Despite of such efforts, Jo concludes that the county’s policy have been marked by continued failure. For example, current Special Economic Zones (SEZs) which are regulated by North Korea and are located on the borders which the nation shares with China and Russia are essentially dilapidated and on their way out (Gale). As established by a historic analysis of similar initiatives which have been taken by the nation to trigger economic progress, the verdict stands that the programs have not proven to be fruitful (Gale). In this scenario, the economic fate of North Korea has been marked by negative growth which has persistently declined since 1971 leading up to the period of mid-90s (Jo). Following an initial mindset that North Korea indeed desired to progress and advance in the international economic arena, this perception regarding the country soon waned with the a drastic change in governmental priorities which saw survival take precedence over other important matters for the administration of Kim Jong-II (Jo). The result of this shift in priorities is seen in the lack of investment which is currently conducted in the nation and how it negatively impacts the development of the state. In this case it is important to note that much of this scarcity of investment and consumption is attributable to the nation’s desire for establishing a military strategy that can eliminate any possible or supposed threats (North Korea, CIA World Factbook). In comparison with the historical economic development of North Korea, economic policies of South Korea have emerged as successful in promoting the nation’s economic aims and objectives. While, it can be maintained that even South Korea abided by the tenets of what can be termed as a “system of closed government” which is similar to that of North Korea, the nation soon realized that the adoption of this policy would not prove to be successful and effective in the long run. Owing to this situation, South Korea established a mechanism which initially favored the purchase of raw material, innovative resources and technological goods from other countries by forgoing consumption and large spending on consumer goods (South Korea, CIA World Factbook). This aspect triggered the emergence of a situation in which government efforts were directed towards encouraging the population towards saving their income and preferring to invest it rather than spending it on the purchase of goods and services therefore, this element comprised of a critical aspect of South Korea’s initial policies for promoting economic development and progress. 2.2 Economic Development in late 1990s and 2000s As identified in the previous section of the research paper, North Korean administration’s economic priorities with regard to the nation’s growth potential changed drastically towards the latter half of the 1990s and this aspect correspond with a stark modification in present economic policies and mechanisms. Jo reports that for the purposes of maintaining its stance of survival rather than growth, North Korea had to develop alternative means of acquiring foreign capital which eventually transpired into the identification of new sources and means. These newly identified means of foreign capital acquisition can be broadly defined under the categories of 1) engagement in unlawful military-related activities including the trade of missiles and 2) an increasing reliance and dependence upon the establishment of inter-Korean economic collaboration. However, it is important to assert that a nation’s engagement in illegal means of promoting economic development can never be viewed as a successful factor towards economic development and this notion has already been observed in the case whose participation in the missile trade has been a constant threat to the nation’s economic prospects. According to a1996 ‘Risk Report’ produced by the Wisconsin Project for the control of the spread of nuclear weaponry and arms “North Korea’s missile trade is a localized cancer… (which has) spread to services and production technology and become harder and harder to track”. Given the threats that are associated with the nation’s missile trade, Jo comments that the nature of such operations is highly risky to manage and implement and this factor is a certain realization which has prompted the state to develop new economic policies and mechanisms so that they can be launched on a domestic scale. As reported by Nanto and Chanlett-Avery, North Korea’s response to a declining economic situation has resulted in the implementation of a series of economic reforms which first began in July 2002 (7). According to Nanto and Chanlett-Avery, the fundamental feature of the nation’s economic reforms have been rooted in at least acknowledging underlying problems and proposing solutions as per the provisions of a strategy of ‘economic adjustment’ (7). For example, under the July 2002 economic legislation the country put an end to the execution of a mechanism of rationing on a number of regular goods except for food items in addition with enhancing the independence of enterprises, launching schemes for the construction of trading complexes and also opening the economy to the influx of foreign investment (Nanto and Chanlett-Avery 7). From the point of view of the state’s human resources economic reforms for labor have integrated a mix of policies to increase wages and also enhance the availability of benefits and incentives for workers (Nanto and Chanlett-Avery 7). Furthermore, a distinguishable aspect of this policy has been rooted in understanding the monetary needs of workers and accepting their demands for them by allocating a share of profitable earnings to employees in accordance with the level of job performance (Nanto and Chanlett-Avery 8). Despite of the implementation of the aforementioned measures, Ahn understands that what remains of North Korea’s economy is on the verge of collapse if it is not rescued and this certainly is a very alarming situation for the country. Jo postulates that North Korea’s current state of the economy invites the significant importance of the roles of South Korea as well as China in the region, as stated previously North Korea’s dependence upon the maintenance of inter-Korea economic collaboration is undeniable. 3. Conclusion of Economic Development – A Comparative Approach The following diagram depicts a comparative illustration of the economic growth rates of South Korea and North Korea beginning from 1990 up to 2008. (Source: Jo, Comparison of the North and South Korean Economies). As reflected by the diagram the lowest point of economic growth and development for South Korea corresponds with the grave financial crisis which hit Asian nations in 1997-1998 (South Korea, CIA World Factbook). However, South Korea’s economy has displayed the ability to revive itself as a result of economic policies which have been characterized by various policies to attract foreign direct investment and focus upon the establishment of strong trade relations through programs such as the US-South Korea Free Trade Agreement (South Korea, CIA World Factbook). Similarly, with the emergence of the present political tensions between North Korea and South Korea which have been further enhanced by the imposition of strict sanctions upon the former, it is highly unlikely that a revival of economic cooperation between the states would result in favorable outcomes for North Korea. Nonetheless, it can be identified that the progress of South Korea’s economy is attributable to the nation’s economic reforms featuring encouragement for foreign direct investment and the establishment of trade relations, however, the same feat has not been achieved by North Korea as the nation’s economy has largely comprised of short term decision making rather than long term planning and a drastic change in priorities which have been steered from economic progress towards the initiation of policies to devise military strategy thereby channeling the entire economic resources of the country towards the advancement of military expertise and capabilities, this factor can be rightfully stated to be the single most critical aspect which has led to the downfall of North Korea’s economy. Works Cited Ahn, Christine. Breathless in North Korea. Huffington Post. 2014. Accessed from http://www.huffingtonpost.com/christine-ahn/breathless-in-north-korea_b_5080063.html [12th April 2014] Alastair Gale. North Korea Signals New Economic Push. 2013. Accessed from [12th April 2014] Jo, Dongho. Comparison of the North and South Korean Economies. Ewha Womans University. June 14th, 2010. Nanto, Dick K. & Chanlett-Avery, Emma. The North Korean Economy: Background and Policy Analysis. CRS Report for Congress. Accessed from [12th April 2014] North Korea – CIA World Factbook. Central Intelligence Agency. 2014. Accessed from [12th April, 2014] South Korea – CIA World Factbook. Central Intelligence Agency. 2014. Accessed from [12th April, 2014] Wisconsin Project. Risk Report. Wisconsin Project. 1996. Accessed from [12th April, 2014] Read More