An update on the DPRK’s economic relations

Francoise Nicolas has written a data-driven survey on the DPRK’s changing trade and investment relationships.  The paper can be downloaded here (PDF).  This paper has also been added to my DPRK Economic Statistics page.  Here is the paper’s conclusion:

This brief analysis of the current external economic relations of the DPRK leads to a number of conclusions.  First, the North Korean economy maintains very limited exposure to the outside world and, as a result, to external influence.  In terms of volume North Korea’s trade is miniscule, even in relation with the size of its economy.  This is also the case for foreign direct investment inflows.

Secondly, although North Korea is less isolated than often thought, its trade and investment flows are very heavily polarized both geographically and sectorally, limiting de facto their potential impact.  In contrast to what was the case during the Soviet era, North Korea’s main economic partners are not ideological partners but neighboring economies, namely China and South Korea.  They are major partners in trade as well as in FDI.  Russia still plays a non negligible role but is in no way comparable to what was the case before the demise of the Soviet bloc.

Thirdly, North Korea’s external economic relations are very much dictated by political considerations.  Politics accounts both for the choice of partners and for the nature of the economic relations.

Fourthly, and more importantly, the very distinct nature of the DPRK’s connection with the rest of the world, and primarily with its two major economic partners, sets it apart from other transition economies and in particular from China, but also from Vietnam.  In the case of North Korea, economic openness, although announced time and again as an official objective, cannot be seen as an instrument for enhancing competitiveness or as part of a development strategy.  The recent, renewed signs of reform in the direction of increased openness should thus be interpreted with utmost caution.

Fifthly, the structure of the country’s external trade is indicative of an economy in survival mode.  The substantial aid component in the inter-Korean trade and FDI relationship undoubtedly further substantiates such a claim.  Surprisingly, relations between North Korea and China are more often based on a market-economy logic, although this only holds true for trade flows and not FDI flows.  The Probability of change through trade appears still very limited.

Lastly, the role the European Union may play in the region remains very much an open question but the margin of maneuver is limited.  Given the state of play described earlier, it would be extremely naive to believe that a European engagement strategy vis-à-vis the DPRK could contribute to economic change.  In addition the country’s lack of attractiveness for potential investors is a further obstacle.  However, the persistent uncertainty and the lack of visibility over the political and economic evolution of the DPRK should not deter European investment in the region and, far to the contrary, should provide a strong incentive to closely monitor the economic moves made in Pyongyang.


4 Responses to “An update on the DPRK’s economic relations”

  1. lankov says:

    Very interesting and useful, many thanks. Found one bug, though. On p.24 Francoise Nicolas obviously mixed up the legal mobile network which operated inside North Korea until 2004 (and after that, too, but with far more restricted access) and illegal hand phones smuggled from China and connected to the Chinese networks.

    BTW, Curtis, later today I’ll drop you a letter. Later this week I’ll be in Washington DC, very briefly.

  2. NKeconWatch says:

    I noticed a couple of points that I thought needed pointing out.

    1. On page 25 that the author does not seem to realize that BAT divested their DPRK holdings.

    2. Also the author classifies the Taedonggang beer factory as foreign direct investment when in fact it was sold lock stock and barrel to the DPRK. As I understand it, the British have nothing to do with the factory now.

  3. Gag Halfrunt says:

    Yes, North Korea simply bought the equipment from a closed brewery.

  4. Gag Halfrunt says:

    P.S. Nicholas writes “shipped stock and barrels”. I wonder if Berkovsky (her reference for the Taedonggang brewery) used the phrase “lock, stock and barrel”, as you did above, and she didn’t understand that it’s just a turn of phrase and nothing to do with actual beer barrels.