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Release of medium-to-long term outlook on respective agenda based
on the analysis of pending macroeconomic issues

Policy Study

Policy Study

Assessment of North Korea’s Current Economic Policies and Outlook

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  • Author LEE. Jongkyu
  • Date 2016/12/31
  • Series No. Policy Study 2016-08
  • Language Korean
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SUMMARY Dominating not only the actions of economic players but also the daily lives of citizens, economic policies play a fundamental role in the shaping of North Korea as we know it. Needless to say, analyzing the progress and significance of these policies is imperative in understanding the “enigmatic economy.” Accordingly, this paper examines the direct and indirect economic impact of the North’s major policy trends and measures upon entering the 21st century.

The keynote address on economic policy was delivered every 5-6 years during the 2000s. The main objective of the North Korean government, above all else, was to restore the collapsed planning function of the economy by resolving the disparity between official and market prices. Following the implementation of subsequent measures, however, market prices and the North Korean won rapidly reverted back to their original high levels, even exceeding them in some cases. In fact, the price gap widened further and marketization gained speed. This, in turn, has exacerbated the dollarization and yuanization of the North Korean market, presenting a phenomenon resembling that of the ‘informalization’ seen in other socialist nations.

To confirm, a survey was conducted on 1,010 North Koreans residing in South Korea. The survey results reveal that 52.1% of household income was generated from informal sectors. Specifically, the share of household income from informal sectors increased from 43.4% before 2005 to 63.5% after 2011, presenting statistical significance; the reasons as to why have changed from “survival” to “consumption and business purposes.”The diminishing role of the public sector can be conjectured from figures related to the people’s daily lives, including the dependency level for food items and consumer goods and share of disposed products as a result of national planning policies. It was also found that informalization is evolving into dollarization and yuanization.

Finally, a logistics regression analysis, using the survey results, examined the characteristics of people who claimed to be influenced by economic policies. Accordingly, the results show that those with a larger share of informal income (52%) than formal income and those who actually experienced the 2009 Currency Reform were more susceptible. Meanwhile, the level of education, participation in government, type of job, and income levels were found not to have much relevance. This implies that, the more people are exposed to informal sectors, the more they are influenced by economic policies.

Despite the underlying limitations, this paper is significant in several aspects. Firstly, while previous studies only center on specific periods and policies, an diachronic investigation, focusing on the 2000s, was conducted in order to understand the overall impact of and trends in policy. This is particularly meaningful as the government moved back and forth, from permitting then banning market activities and vice versa, in response to the rapidly expanding informal sector from the 2000s, following the“Arduous March” (great famine and economic crisis 1994-1998). Secondly, efforts were made to examine the ripple effects from the North’s economic policies and to verify the ‘informalization hypothesis’ via a survey of 1,010 respondents. Notably, the specimen pool included those who had first-hand experience of the currency reform to see whether the changes indeed correlate with informalization. And thirdly, this paper explored the differing perceptions of economic players with regards to economic policy and how these policies have affected North Korea’s current economic landscape via a cross-checking of existing studies, North Korean literature and survey results.
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