Body
In a previous post I examined the possible increase in merchandise trade between the US and North Korea; today I address the issue of trade in services. Both topics are discussed in the paper I presented at the KIEP conference in Seoul last week.
As in the case of trade in goods, there are multiple ways to generate counterfactual estimates of potential trade in services. Perhaps the simplest is to simply benchmark off of merchandise trade. In 2012, merchandise trade between the US and South Korea was approximately $102 billion, and total private services trade was approximately $27 billion. Therefore, trade in services were 26.5% of trade in goods. If this ratio is applied to the 20-fold expansion of world trade described in the earlier post, this would imply that North Korea could be doing $254 million in services trade with the United States in addition to nearly $1 billion in goods trade. Presumably this services trade would consist mainly of US exports of business and professional services to North Korea, and North Korean exports of travel and tourism services to the US. To be clear, this estimate should be regarded as a ceiling: North Korea is considerably poorer than South Korea and the consumption of modern business services rises with per capita incomes. But the largest single component is likely to be North Korean exportation of travel and tourism services to the US.
How large might North Korean tourism exports to the US be in a post-unification scenario? According to Commerce Department figures, in 2012 542,000 Americans visited South Korea. Approximately 75 percent of these visits were for leisure or to visit family. Far fewer American tourists visited North Korea. (And for good reason.) One industry source indicates that the average one day costs for American tourists in North Korea are approximately $245. This implies that if all the American leisure visitors made a three day side-trip to North Korea their expenditures would be on the order of $300 million. These exports might come at the expense however, of some South Korean tourism exports if American visitors substituted stays in North Korea for time they would have otherwise spent in South Korea. So North Korean tourism exports might rise by $300 million, but overall Korean peninsula tourism exports would probably rise by less.
Another way to think about this would be to examine the potential pool of American tourists to North Korea. According to the 2012 American Community Survey, approximately 1.76 million Americans identify themselves as of Korean ancestry. (Of this group, 674,757 (38 percent) were native citizens born in the United States, 614,529 (35 percent) are foreign-born naturalized US citizens, and the remaining 471,142 (27 percent) are not US citizens.) Korean-Americans exhibit high rates of upward mobility and business formation, so as a group, they are likely to be if anything more interested in and financially capable of international travel than the general population.
If we assume 5 percent of the total Korean-American population in the United States visits North Korea each year, this would be roughly 88,000 thousand people/year. According to the Commerce Department figures, the median length of stay for US visitors to Asia is 14 nights. An industry source reported that rates vary by size of the party, but that $1,000 per week for a group of 2-9 visitors would be typical. This implies that such tourism could generate something on the order of $176 million per year.
These tourism calculations are by their nature highly speculative and not entirely additional to the earlier estimate of $254 million in services trade overall. If half of that overall estimate is travel and tourism that implies that the bilateral trade in services might be on the order of $300-425 million annually.
