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Policy Study Long-term Trends in North Korea’s Income and Welfare Estimated Through New Data December 31, 2020

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Series No. 2020-04

Policy Study KOR Long-term Trends in North Korea’s Income and Welfare Estimated Through New Data #North-South Korean Economic Cooperation/Policy on North Korea/Unification Policy #General(Other)
DOIhttps://doi.org/10.22740/kdi.ps.2020.04 P-ISBN979-11-5932-598-4 E-ISBN979-11-5932-611-0

December 31, 2020

  • 프로필
    KIM, Kyoochul
Summary
In the mid- to late 1990s, the North Korean economy fell into a deep recession―this is a fact that is undisputed even by experts. However, upon entering the recovery period in the 2000s, two different views have formed on the issue of growth. According to the Bank of Korea’s GDP estimates, North Korea’s growth has been far from vigorous, and is moderate at best. Moreover, recent economic trends in North Korea appear to be following in line with those in late 1990s when the country was in economic crisis, according to the Bank of Korea. On the other hand, numerous indicators related to living standards, such as surveys on the nutritional status and diets of North Korean children conducted by international organizations, indirectly suggest that the economy has improved significantly since then. The testimonies and articles of North Korean defectors and specialized media have also attested that there has been considerable economic progress since the late-2000s and Kim Jong Un’s ascension. As a result, opinions over North Korea's economic trends since the 2000s have become divided. Accordingly, based on a comparison of these differing views, this study presents a research question. Specifically, why are there discrepancies in the North Korean economic trends estimated through production (income) and those estimated through people’s livelihood.

Firstly, this study used the physical indicator method to analyze production and welfare indicators. For this, reliable physical indicators that can be used to construct panel data were selected and divided into indices for industry, health and nutritional status, and society. Each index was used to estimate the trends in North Korea's per capita GDP, and the trends were analyzed using a fixed-effect panel model that reflects country-specific characteristics. The trends in production- and welfare-based per capita GDP estimates were then compared for any inconsistencies. Satellite data on North Korea’s night lights was also deployed to obtain additional estimates. This new physical indicator is more objective than existing indicators, and can be used to verify the economic performance of each local area in North Korea.

According to the analysis, North Korea’s economic trends estimated through industrial indicators, such as energy, electricity, and oil, exhibit neither a major recovery nor any improvement since the 2000s. This result is similar to the Bank of Korea’s estimates which are based on production indicators. However, the per capita GDP trends estimated through welfare indicators, such as health and nutritional status, clearly show a degree of recovery after the Arduous March (great famine). Therefore, it can be determined that a gap does indeed exist and that opinions can differ depending on which indicator is used. Additionally, the trends estimated using satellite data on night lights also clearly point to a recovery after the 2000s, echoing the trends based on welfare indicators.

So, what are the reasons behind this gap? This study presents the possibility that internal factors, such as the rise of jangmadangs (informal markets), and external factors, such as foreign trade and investment, may be the cause. Indeed, when North Korea’s economic trends are examined by region using satellite data on night lights, it is found that the vitalization of external economic activities (trade with China and South Korea, investments in Mt. Geumgang tours and Kaesong industrial complex, etc.) is closely tied to the economic activities of local areas.

The following implications can be derived from the above results. Depending on what the recovery conditions are found to be in each sector of North Korea, priority issues can change when inter-Korean economic cooperation resumes. For example, the energy sector could serve as an ideal agenda for cooperation since its recovery has been the slowest. Also, although living standards are believed to have improved, the level of welfare is still inferior to that in other countries. Accordingly, given that the livelihoods of North Koreans are firmly connected to the expansion of jangmadangs, market-oriented measures should be considered.

A meaningful achievement of this study was the use of satellite data on night lights in the analysis of North Korea’s economic performance by region. Indeed, the results could be used to measure local economic conditions to establish future North Korea policies. The findings also bear significant policy implications as they provide perspective on regional approach, for example, regions that need humanitarian assistance, among others.
Contents
발간사
요 약

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