KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Other Research Dialogue on the North Korean Economy, May 2022

Markets in North Korea I : Development, Structure, and Changes

Over the past three decades, North Korea has experienced a period of economic change, most notably in the development of the market. North Korea maintains that it operates a tightly controlled planned economy, the elements of which are poorly understood by the international community. Currently, the economic system is supported by informal market activities that are the main source of income for the majority of ordinary economic players. Accordingly, economic researchers around the world have pivoted their focus toward the market activities in North Korea.

In this issue of Dialogue, the KDI Office of North Korean Economic Studies invited Professor Moon-Soo Yang to share his knowledge on the basic elements of the North Korean market, directing particular attention to its unique development, structure, and recent changes. Professor Moon-Soo Yang is a leading researcher at the University of North Korean Studies, whose career has consistently dedicated focus to rigorous investigation and understanding of the North Korean market.

With this discussion, we endeavor to provide the readers with the unique opportunity to expand their primary understanding of the markets in North Korea.

· nterviewer
　Lee, Suk (Senior Fellow at KDI)

· Interviewee
　Yang, Moon-Soo
　(Professor at the University of North Korean Studies)

Summary

Working Paper North Korean Living Standards in Comparative Perspective: Evidence from Household Wealth Data

This paper uses household wealth data and the International Wealth Index (IWI) methodology to measure the living standards of North Korea in comparative perspective. The country’s wealth index in 2017 is estimated to be far higher than those of most low income countries and not much different from the mid-level of lower-middle income countries. North Korea’s regional inequality seems also to be in line with what is common in lower-middle countries. This paper’s estimation suggests that the popular perception that the country is one of the world’s poorest lacks sufficient evidence.

Summary

Other Research Dialogue on the North Korean Economy, February 2022

Industries and Enterprises of North Korea: Facts, Concepts, and Trends

In the study of the North Korean economy, industrial and business activities still remain uncharted territory. They are the most basic components of an economy, yet the scarcity of information makes those in North Korea almost impossible to understand from the outside world. Today, the general perception is that North Korea’s industrial and business activities have completely changed from those of past socialist economies. In fact, rather than central plans, capitalist factors such as markets and profit are becoming the daily standards, and North Korea’s industry and business activities are by no means exceptions to these so-called changes and economic reforms. To understand the present status and future direction of the North Korean economy, it is important to grasp how industry is managed and business activities are conducted.

Against this backdrop, we have invited the leading expert in the field, Dr. Seogki Lee, Senior Research Fellow at the Korea Institute for Industrial Economics and Trade (KIET). Dr. Lee has pursued the goal to better understand North Korea through research and observations of its industry and business activities.

· Interviewer
　Lee, Suk (Senior Fellow at KDI)

· Interviewer
　Lee, Seogki
　(Senior Research Fellow at KIET)

Summary

Research Monograph KOR The Impact of DPRK Sanctions and North Korea’s Economic Future

This study aims to provide an understanding of the significance and impact of the stronger sanctions than were enforced against North Korea from 2016. To that end, it first discusses the concept of DPRK sanctions. The discussion begins with a comparison of past and present sanctions against North Korea, and then explores the US’　perspective　and the commonalities and differences between the present DPRK sanctions and sanctions against other nations, such as Iran. This is followed by an analysis of the economic impact on North Korea from 2016-17 to the present. Specifically, the North Korean economy was divided into trade, industry, foreign exchange, markets and the informal sector, and food and agriculture, and an analysis was conducted on how each area was affected and to what extent. While the analysis is based on empirical data, it also looks into the qualitative information observed from the North Korean economy. Lastly, this study examines the economic repercussions of sanctions in relation to the future of the North Korean economy. By employing new perspectives and data to analyze the qualitative, not quantitative, impact of sanctions on trade, which is tied to North Korea's economic growth, it discusses the growth trajectory of North Korea when sanctions are maintained and when they are lifted.

Summary

Policy Study KOR A Study on the Determinants of Food Prices in North Korea

This study provides various analyses related to food prices in North Korea. I examine in detail the factors that determine the price of food in North Korea, including supply factors such as internal food production and imports, demand factors such as the income level of North Korea, food distribution and market activities, and the price control policy of the North Korean authorities. In addition to analyzing data, I employ qualitative methodology such as interviews with North Korean defectors to examine the contents related to food prices in North Korea. This study finds that North Korea's grain import prices significantly affected North Korean grain market prices during the period 2014-2019 when North Korean prices were stable. Through this, it raises the possibility that North Korea's grain market price may not accurately reflect the North's food situation. Even if the food situation inside North Korea worsened, market prices could have been stabilized due to import prices. In this regard, it is emphasized that food aid policies for North Korea need to be established based on various data, such as internal crop production, imports, North Korean income levels, and rations, in addition to market prices.

Summary

Policy Study KOR Trends and Issues of Foreign Direct Investment on North Korea

This paper examines foreign direct investment (FDI) in North Korea (DPRK). Investment attraction is a matter of paramount importance for the past, present, future of the North Korean economy. Formerly, the North Korean regime regarded FDI as a means to offset its trade deficit. Currently, FDI is used as an indicator to gauge the effects of sanctions on the DPRK, given multiple sanctions imposed against it, including a ban on investment. First and foremost, investment from abroad is the most formidable tool for the North Korean economy to take off.

Against this backdrop, this study looks into FDI in North Korea with macro and microscopic perspectives. Macroscopically, a comparative analysis is made between total foreign investment in DPRK and foreign investment by country in DPRK. Microscopically, an analysis of FDI trends is conducted by reconstructing corporate and industrial statistics. The macro-and micro-analyses have yielded the following seven findings.

First, the trend analysis of total foreign direct investment in DPRK based on UNCTA statistics revealed that FDI began to increase in 2004 and fluctuated multiple times, showing large inflows in 2008 and 2014. Due to the insignificant amounts of FDI, initially, legal and institutional changes alone and a one-off corporate or national project, later on, were sufficient to rapidly increase foreign investment into the country.

Second, as for FDI by country in DPRK, this study examines China, Russia, and OECD members (37 countries), which accounted for 91% of total FDI in DPRK between 2007 and 2017. According to the analysis, China has always been a strong buttress for FDI in North Korea. It also shows that total FDI increased as Germany and Russia increased their contribution in 2008 and 2009 and 2011 and 2012. It also shows that total FDI increased as Germany in 2008 and 2009 and Russia in 2011 and 2012 increased their investment abroad.

Third, this study examines corporate and industrial investment in DPRK by compiling multiple previous studies and reconstructing the data. A total of 372 corporate samples from 2000 to 2015 were put together, with an estimated total investment amount of $3.5 billion and an average investment per enterprise of $14.67 million.

Fourth, an analysis of the motives of Chinese companies to invest in DPRK shows that despite risks associated with property rights, the short-term prospects of profitability seem to attract them to North Korea. Incentives at work include growth of DPRK's informal sectors, regulatory evasion and cost savings, securing monopoly rights, and more.

Fifth, the reconstructed data is used to understand the industrial features. It shows that the mining industry takes up a large portion of China's FDI in North Korea in terms of the number and amount of investment cases, accounting for 37% of the number of cases and 50% of the total amount. Per the analysis, five out of the top ten companies have invested in the mining sector, indicating that the mining industry led the investment in North Korea during the concerned period.

Sixth, this study analyzes the ripple effects of changing investment patterns using the input-output table and finds that China's mining-centered FDI in DPRK produced some impact but not much greater than its investment in light and heavy industries. Provided that FDI shifted from mining to light industry, the effect would have increased by 27% for the same amount.

Seventh, FDI stock from China took up 57% of total foreign investment in North Korea, and China's FDI flows reached an annual average of 46%. These figures are similar to corporate data based on the Open Source Center (OSC), which indicates investment by Chinese companies accounted for 58%; however, the number rises to 76% if it excludes those whose country of incorporation is unknown.

To sum up, this study examines country breakdowns of FDI in North Korea using mirror statistics to explain what caused trends shown in the data. Moreover, the analysis applies a micro perspective to complement macro data. By putting together data of 372 Chinese enterprises investing in North Korea, it could identify trends by industry and estimate the ripple effects of their investments. Yet this inquiry carries more significance in that analyzing and investigating available data help get ready for when the door to North Korea for foreign investment opens up. In this way, weak points of accessible data sets can be found together with ways to make up for such shortcomings. Above all, it is meaningful to discuss basic statistics, as the process may shed light on the right direction for FDI policy.

Summary

Other Research Dialogue on the North Korea Economy, October 2021

Price and Foreign Exchange Rate in North Korea: Observations, Trends, and Analysis

One of the most important variables in the study of the North Korean economy is market prices and foreign exchange rates. This is because of the assumption that the two variables immediately reflect the status and trends of the North Korean economy. In fact, many North Korean economic studies use observations on these variables as important analysis data. Despite such reality, however, market price and the foreign exchange rate are among the trickiest of all macroeconomic variables related to the economy. Researchers have yet to agree as to how the variables should be measured, what kind of methods should be used to analyze the measures, and how the outcomes should be interpreted.

In an attempt to find an answer to these questions, we invited Dr. Ji Young Choi, Research Fellow at the Korea Institute for National Unification (KINU). Dr. Choi has long studied prices and foreign exchange rates in North Korea. She is recognized as one of the most prominent experts in the area not only in Korea but also abroad.

· Interviewer
　Lee, Suk (Senior Fellow at KDI)

· Interviewer
　Choi, Ji Young
　(Research Fellow at KINU)

Summary

Other Research 2020/2021 The DPRK Economic Outlook

The North Korean economy was driven to the proverbial brink in 2020 by the Covid-19 crisis and escalating fallout from the stronger sanctions since 2016. At the beginning of the year, the regime sealed off its borders to China and Russia in an effort to ward off the virus, and did not reopen them until the following year. Inevitably, overseas trade was brought to a near collapse as transactions with China plummeted by 80% year-on-year. It is easy to estimate how dire the situation was in 2020 when we consider the fact that North Korea’s trade with China was already at a mere 50% of the previous year in 2019.

Summary

Working Paper The Economic Reform of North Korea in the Kim Jong Un Era: Status & Evaluation

This paper aims to identify major economic reform measures conducted by North Korea in the Kim Jong Un era and evaluate the characteristics, accomplishments, and limitations of the reform policy. After running several pilot programs since 2012, starting 2014, North Korea began to implement the so-called “Our Style Economic Management System” and “Socialist Enterprise Responsibility Management System.” These are characterized by the expansion of the scope of activities officially allowed to conduct in the market and the incorporation of market mechanism into the planning system. The North Korean economy in the Kim Jong Un era saw the dual structure where the planning and market systems exist in parallel being more firmly established. The economic management system in that era shares many characteristics of other economic reforms in socialist countries on the one hand; but on the other hand, North Korea’s economic reform has some characteristics that are different from those of other socialist economies

Summary

Other Research Dialogue on the North Korea Economy, April 2021

North Korean Statistics and Research on the North Korean Economy

For researchers who study the North Korean economy, one of the most unknown and interesting areas is North Korean statistics. There are many questions such as: Do statistics on the North Korean economy even exist? If not, how do overseas researchers conduct their studies? and If so, can we trust them? What statistics are published by the South Korean government and other global institutions? The list goes on, but no one has come up with a conclusive answer.

This is why we chose North Korean statistics as the first topic of the new series. Numerous questions were dealt with on the topic and their significance for studies on the North Korean economy. We hope you find this article useful and informative.

· Interviewer
　Cho, Byungkoo (Senior Fellow at KDI)

· Interviewee
　Lee, Suk (Senior Fellow at KDI)

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