(Update) Lee Jong-seok slams Bank of Korea (and CIA) estimates of North Korean economy

UPDATE 2: On March 6, 2008 the CIA World Fact Book on North Korea was updated. Yonhap reports that the CIA’s estimate of North Korean GDP in 2007 (adjusted for PPP) is unchanged from 2006 at $40 billion and that per-capital GDP has increased from $1,800 to $1,900.  But the story also reports that the CIA has estimated an increase in North Korea’s population–23,301,725 in 2007, up from 23,113,019 in 2006.

So my quesiton is this…

If GDP is unchanged, how do you increase per capita GDP without reducing the population numbers?

On a side note…one of my former economics professors used to say, “Stalin increased per capita GDP in the Soviet Union by reducing the denominator.”

Update 1: From Dr. Petrov:
Per-capita GNI at $368 to $389 seems to be right [from the revised estimate below]. It’s approximately 1/3 of the Soviet figure by the time it collapsed (around $1000 per-capita). These days North Koreans still live poorer than people in the USSR.

Original Post: Yonhap reports that Lee Jong-suk, former Minister of Unification and senior fellow at the Sejong Institute, claims that the South Korean Bank of Korea has radically overestimated North Korea’s Gross National Income and military spending.

In August, the Bank of Korea (BOK) announced that North Korea’s nominal gross national income (GNI) amounted to US$25.6 billion in 2005, about 35 times smaller than South Korea’s. GNI refers to a nation’s gross domestic product plus its trade loss or gain arising from changes in trade. The bank also estimated North Korea’s per-capita GNI at $1,108 that year, about 17 times smaller than that of its rival South Korea.

The U.S. Central Intelligence Agency’s (CIA’s) latest estimate of North Korea’s nominal GNI is $40 billion.

“If the BOK statistics are true, North Korea’s per-capita GNI represents two thirds of China’s $1,736, and nearly double Vietnam’s $616,” Lee said in a monthly magazine published Friday by the institute in the southern suburbs of Seoul. “Nobody would believe it if someone said North Korea is two times wealthier than Vietnam that is close to resolving its food problems,” Lee said.

The bank used a “wrong method” of employing South Korea’s price and value-added rate information in calculating North Korea’s GNI, the expert said. One dollar is about 150 North Korean won and about 950 South Korean won.

Lee said he commissioned financial experts to calculate North Korea’s GNI using “a method generally used by countries over the world” while in office. “North Korea’s GNI came to $8.4 to 8.9 billion with a per-capita GNI at $368 to $389 based on the 2005 foreign currency market rate,” he said, adding the estimates better reflect North Korea’s economic reality.

North Korea’s defense spending would be around $2.1 to $2.6 billion, not $5 billion, when the same calculation method is used, he said.

Read all of the stories here:
N. Korea’s GDP estimated at $40 billion: CIA
Yonhap
3/12/2008 

N. Korean economy overestimated says expert
Yonhap
3/8/2007

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  • Per-capita GNI at $368 to $389 seems to be right. It’s approximately 1/3 of the Soviet figure by the time it collapsed (around $1000 per-capita). These days North Koreans still live poorer than people in the USSR.

  • Werner Koidl

    You asked: “So my quesiton is this…
    If GDP is unchanged, how do you increase per capita GDP without reducing the population numbers?”

    The CIA-factbook itself tries to explain why $40billion:

    “$40 billion
    note: North Korea does not publish any reliable National Income Accounts data; the datum shown here is derived from purchasing power parity (PPP) GDP estimates for North Korea that were made by Angus MADDISON in a study conducted for the OECD; his figure for 1999 was extrapolated to 2007 using estimated real growth rates for North Korea’s GDP and an inflation factor based on the US GDP deflator; the result was rounded to the nearest $10 billion (2007 est.)”

    Thus, in 1999 the GDP was estimated, extrapolated over 8 years to 2007 and then rounded up to the nearest $10 billion !!
    Seems to be an correct mathematical exercise, but thats it ?!

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