Chinaʼs Effectiveness on International Trade of North Korea with Gravity Theory

Abstract

Purpose: Despite sanctions and negotiations against North Korea within the international community, research on the effectiveness and effects by the international community on North Korea’s nuclear dismantlement are ongoing. Such UN and US sanctions are likely to increase or decrease, especially in geographically-adjacent China. The purpose of this study is to verify the effectiveness of China on international sanctions against North Korea, caused by the changes in bilateral trade patterns. In addition, this study will examine the effects on strategic materials. Design/Methodology: In this study, the gravity theory, which is recognized as an effective model for explaining the flow of international trade, was used to estimate the impact of international sanctions on North Korea. The gravity theory is highly regarded as the most efficient model for explaining trade patterns between the two countries, such as geographical conditions and the role of national economic integration under the WTO regime. In addition to the basic variables of gravity, GDP and distance variables between countries, the effectiveness of the international community’s sanctions by the UN and the International Export Control System were analyzed separately. Findings: The result of the analysis shows that only the distance variable has a negative effect on the export amount and the GDP variable has no correlation, showing us that the gravity theory can be applied on a very limited scale. In other words, we could see that the trading pattern of North Korea was explained with the gravity theory due to the effect of China. Especially in the case of strategic material trade that places emphasis on the political relationship between trading nations, this study could see that the gravity theory, which assumes minimization of the transaction cost as the premise, is applied on a very limited scale if the effect of China is excluded. Also, this research can see that the sanctions of the international export control system, rather than the sanctions by the UN Security Council, had a negative effect on the trade of North Korea. And lastly, this study analyzes the trading pattern after excluding the effect of China based on the same data to compare it with the empirical study of Jung et al.