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Is Qualitative Growth Enough for North Korea’s Trade?

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KDI Brief No.148 (September 20, 2018)

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Is Qualitative Growth Enough for North Korea’s Trade?
Foreign Trade of North Korea | Trade

AUTHOR
Kyoochul Kim
Department of Economic Policy and Strategy
 
 
Despite international sanctions, North Korea’s trade has exhibited quantitative growth. However, the sanctions have also limited North Korea’s trade partners to China. The surging demand for anthracite in China has skewed North Korea’s trade structure, leaving it vulnerable to external shocks and possibly distorting the allocation of resources and diminishing the capital investment in other industries. In response, the South Korean government must make efforts to seek new measures for economic cooperation to encourage North Korea to foster other industries that have comparative advantage. In addition, assistance must be made available to enable North Korea to establish a balanced trade structure by diversifying its trade partners and trade portfolio.
 
 
North Korea’s trade has grown in quantity since the 2000s.
 
North Korea’s economic growth was unable to catch up with the growth in trade due to the qualitative decline.
 
North Korea’s trade has been heavily dependent on China from the mid-2000s.
 
From 2008, North Korea’s top export item has been anthracite and its export volume has expanded sharply.
 
The spike in North Korea’s anthracite exports from the late 2000s was driven by demand factors including an increase in the demand for fossil fuels on China’s economic development and also supply factors including the difficulties in earning foreign currency.
 
National income and economic growth are determined by qualitative aspects such as what items are being exported.
 
The trends in North Korea’s physical and human capital investment helps to evaluate the quality of its export and to project the sustainability of its long-term economic growth.
 
An anthracite-dependent export structure would reduce the investment in physical and human capital, possibly leading to longterm economic stagnation.
 
Vietnam’s exports have grown in both quantity and quality, since consistently expanding its export of hightech products, contrary to North Korea whose trade quality has weakened.
 
North Korea’s China- and anthracite-dependent trade structure is vulnerable to external shocks as well as reducing human and physical capital investment, diminishing long-term growth.
 
The South Korean government needs to act as a bridge between North Korea and the world, helping North Korea discard the existing trade structure and transform itself into a normal member of the global economy.
 
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