Emerging Markets / March 15, 2018

Agribusiness and Economics on the Korean Peninsula

As the prospect of a face-to-face meeting between US President Donald Trump and North Korean leader Kim Jung Un continues to grow, it is important to consider the economic and political characteristics of the Hermit Kingdom. During the early 20th century, following the Russo-Japanese War, Imperial Japan occupied the Korean peninsula. However, after the defeat of Imperial Japan during World War II, the Korean peninsula was divided (as was Germany). The northern half of the Korean peninsula was occupied by the Soviet Union, while the southern half was put under the administration of the United States.

Agribusiness and Economics on the Korean Peninsula

The Korean War, which was fought between 1950 and 1953, started when the communist north tried to forcibly annex the south and reunify the peninsula under totalitarian rule. However, the war quickly became an international theater with international forces, including the United States, Western Europe, and even Colombia, fighting alongside South Korea to defend its sovereignty and societal model. After a stalemate was finally reached, North Korean leader Kim Il Sung further isolated the country and created a massive anti-western propaganda machine. Ever since, the Kim dynasty has had one priority, which is preserving power by all means necessary.

For decades, the unresolved issue of the Korean peninsula has been an international hot button, but the prospect of a peaceful reunification under a liberal societal model has always been alive. Though unimaginable for the North Korean leadership (and to a lesser degree for China), the reunification of Korea would present the prospect of enormous economic growth. The transition towards a unified Korea would be complex given that currently some 25.3 million North Koreans live with an average GDP per capita of US$1.700 (in terms of purchasing power parity, PPP), while 51.2 million South Koreans enjoy a GDP per capita of US$39.400 (PPP). However, North Korea has a large amount of natural resources and a larger territory than South Korea, in addition to its population that has an average age of 34 years and can be trained as a major labor force.

With a total territory of 120.538 square kilometers, North Korea is larger than South Korea and somewhat larger that Virginia. Furthermore, North Korea has a coastline of 2.495 kilometers as well as land borders with South Korea, China, and Russia. Geographically, North Korea has a mountainous terrain alongside narrow valleys and coastal plains. In economic terms, North Korea has a GDP of approximately US$40 billion (PPP). Similarly, the North Korean economy is divided into 25% agriculture, 41% manufacturing, and 34% services. Furthermore, it is estimated that the agricultural industry employs 37% of the national labor force. Lastly, in North Korea, the agriculture industry utilizes 22% of the national territory, while another 46% is forested. In terms of trade, during 2015, North Korea imported US$3.5 billion worth of goods and exported US$2.8 billion, resulting in a trade deficit of US$640 million.

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