Risks in the North Korean Special Economic Zone: Context, Identification, and Assessment

Sung-Hoon Lim

Emerging Markets Finance and Trade, 2011, vol. 47, issue 1, 50-66

Abstract: This paper examines the key factors (firm-specific conditions, political risk, and countermeasures for reducing political risk) affecting the risk assessment of the Kaesong Industrial Complex, a North Korean special economic zone extremely sensitive to the North Korean nuclear issue. The empirical results suggest that of the foreign firms operating in Kaesong, those with a structure sufficiently flexible to cope with the rising cost of labor are more likely to face higher levels of political risk. In addition, investment decisions involving high levels of political risk are closely related to company strategies such as minimizing the initial investment and deploying a dual-plant strategy.

Keywords: foreign direct investment; North Korea; northeastern Asia; political risk; risk assessment; special economic zone (search for similar items in EconPapers)
Date: 2011
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