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Economy of North Korea

From Academic Kids

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A satellite photo of East Asia at night illustrates the harsh state of the North Korean economy in contrast to that of the neighboring countries in the region.
North Korea's faltering economy and the breakdown of trade relations with the countries of the former socialist bloc - especially following the fall of communism in eastern Europe and the disintegration of the Soviet Union - have confronted Pyongyang with difficult policy choices. Other centrally planned economies in similar straits have opted for domestic economic reform and liberalization of trade and investment. Despite its recent moves toward limited economic opening, North Korea has thus far avoided making any fundamental changes. Its leadership seems determined to maintain tight political and ideological control.

About 80% of North Korea's terrain consists of moderately high mountain ranges and partially forested mountains and hills separated by deep, narrow valleys and small, cultivated plains. The most rugged areas are the north and east coasts. Good harbours are found on the eastern coast. Pyongyang, the capital, near the country's west coast, is located on the Taedong River.

Although most North Korean citizens live in cities and work in factories, agriculture remains a rather high 25% of total GNP, although output has not recovered to the levels of the early 1990s. While trade with the South has expanded since 1988, no physical links between the two remain, and the infrastructure of the North is generally poor and outdated.

North Korea suffers from chronic food shortages, which free market economists attribute to forced collective farming; these shortages were exacerbated by record floods in the summer of 1995 and continued shortages of fertilizer and parts. In response to international appeals, the US provided 500,000 tons of humanitarian food aid in the period July 1999-June 2000 through the UN World Food Program and through US private voluntary organizations.

Contents

Colonial rule and postwar division

Beginning in the mid-1920s, the Japanese colonial administration concentrated its industrial development efforts in the comparatively under-populated and resource-rich northern portion of Korea, resulting in a considerable movement of people northward from the agrarian southern provinces of the Korean Peninsula.

This trend was reversed after the end of World War II, when more than 2 million Koreans moved from North to South following the division of Korea into Soviet and American military zones of administration. This southward exodus continued after the establishment of the Democratic People's Republic of Korea (North Korea) in 1948 and during the 1950-53 Korean War. The North Korean population is now 21.2 million, compared with 46.4 million in South Korea.

The post-World War II division of the Korean Peninsula resulted in imbalances of natural and human resources, with disadvantages for both the North and the South. By most economic measures, after partition the North was better off in terms of industry and natural resources. The South, however, had two-thirds of the work force. In 1945, about 65% of Korean heavy industry was in the North but only 31% of light industry, 37% of agriculture, and 18% of the peninsula's total commerce.

North and South both suffered from the massive destruction caused during the Korean war. In the years immediately after the war, North Korea mobilized its labour force and natural resources in an effort to achieve rapid economic development. Large amounts of aid from other communist countries, notably the Soviet Union and the People's Republic of China, helped the regime achieve a high growth rate in the immediate postwar period.

Efforts at modernization

During the early 1970s, North Korea attempted a large-scale modernization program through the importation of Western technology, principally in the heavy industrial sectors of the economy. North Korea found itself unable to finance its debt, because demand for its exports shrank steadily after the oil crisis of the 1970s, until it became the first communist country to default on its loans from free market countries.

In 1979, North Korea was able to renegotiate much of its international debt, but in 1980 it defaulted on all of its loans except those from Japan. By the end of 1986, hard-currency debt had reached more than $4 billion (4 G$). It also owed nearly $2 billion to communist creditors, principally the Soviet Union. The Japanese also declared North Korea in default. By 2000, taking into account penalties and accrued interest, North Korea's debt was estimated at $10-$12 billion.

Largely because of these debt problems but also because of a prolonged drought and mismanagement, North Korea's industrial growth slowed, and per capita GNP fell below that of the South. By the end of 1979, per capita GNP in North Korea was about one-third of that in the South. The causes for this relatively poor performance are complex, but a major factor is the disproportionately large percentage of GNP (possibly as much as 25%) that North Korea devotes to the military.

In April 1982, Kim Il-sung announced a new economic policy giving priority to increased agricultural production through land reclamation, development of the country's infrastructure - especially power plants and transportation facilities—and reliance on domestically produced equipment. There also was more emphasis on trade.

In September 1984, North Korea promulgated a joint venture law to attract foreign capital and technology. The new emphasis on expanding trade and acquiring technology, however, was not accompanied by a shift in priorities away from support of the military. In 1991, North Korea announced the creation of a Special Economic Zone (SEZ) in the northeast regions of Rajin-Seonbong and Ch'ŏngjin. Investment in this SEZ has been slow in coming. Problems with infrastructure, bureaucracy, and uncertainties about investment security and viability have hindered growth and development.

North Korea announced in December 1993 a 3-year transitional economic policy placing primary emphasis on agriculture, light industry, and foreign trade. However, lack of fertilizer, natural disasters, and poor storage and transportation practices have left the country more than a million tons short of grain self-sufficiency each year. Moreover, lack of foreign exchange to purchase spare parts and oil for electrical generation has left many factories shuttered. Without significant opening to the outside world and substantial outside resources, North Korea is unlikely to return to a path of sustainable economic growth.

North-South economic ties

North and South Korea's economic ties have fluctuated greatlly over the past 30 years or so. As of now 2004 North-South relations have warmed, and many firms have agreed to invest in North Korea, encouraged by the South Korean governments commitment to cover their losses should investment projects in the north fail to become profitable. However despite all of this North Korea's trade ties are still relatively weak and will probably remain so as only a few economic giants actually agree to trade with it.

Following a 1988 decision by the South Korean Government to allow trade with the North (see Reunification efforts since 1971), South Korean firms began to import North Korean goods. Direct trade with the South began in the fall of 1990 after the unprecedented September 1990 meeting of the two Korean Prime Ministers. Trade between the countries increased from $18.8 million in 1989 to $333.4 million in 1999, much of it processing or assembly work undertaken in the North.

During this decade, the chairman of the South Korean company Daewoo visited North Korea and reached agreement on building a light industrial complex at Namp'o. In other negotiations, Hyundai Asan obtained permission to bring tour groups by sea to Kŭmgang-san on the North Korea's southeast coast (see Kŭmgang-san Tourist Region), and more recently to construct an 800 acre (3.2 km²) industrial complex at Kaesŏng, near the Demilitarized Zone (DMZ), at a cost of more than $1 billion.

In response to the summit between Kim Jong-il and Kim Dae-jung in 2000, North and South Korea agreed in August 2000 to reconnect the section of the Seoul-P'yŏngyang Gyeongui Railway Line across the DMZ. In addition, the two governments said they would build a four-lane highway bypassing the truce village at P'anmunjŏm. Once these projects are complete, the Kaesŏng industrial park will have ready access to South Korean markets and ports.

Economic ties with other countries

In addition to Kaesŏng and Kŭmgang-san, other special economic areas have been established at Sinŭiju in the northwest (on the border with China), and at Rasŏn in the northeast (on the border with China and Russia).

GDP

purchasing power parity - $22.58 billion (2003 *est.)

  • GDP - real growth rate: 1% (2003 est.)
  • GDP - per capita: (purchasing power parity) $1,300 (2003 est.)

GDP - composition by sector

agriculture:30.2%
industry:33.8%
services:36%

Data: 2003 est.

Labour force

The labour force is 9.6 million.

Labour force - by occupation:

  • agricultural 36%
  • non-agricultural 64%

There is no data about the unemployment rate available.

Budget

There is no data about the budget available.

Industries

The main industries are: military products; machine building, electric power, chemicals; mining (coal, iron ore, magnesite, graphite, copper, zinc, lead, and precious metals), metallurgy; textiles, food processing; tourism.

Electricity - production

30.01 TWh (2003)

Electricity - production by source:

  • fossil fuel: 34.4%
  • hydro: 65.6%
  • nuclear: 0%

as of 1998

Electricity - consumption: 29.91 TWh (2001)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products

The main agricultural products of North Korea include: rice, corn, potatoes, soybeans, pulses; cattle, pigs, pork and eggs.

Exports

$1.044 billion (f.o.b., 2003 est.)

Exports commodities include minerals, metallurgical products, manufactures (including armaments); agricultural and fishery products.

The main export partners are South Korea 28.5%, China 28.4%, Japan 24.7%. (2003 est.)

Imports

$2.042 billion (c.i.f., 2002 est.)

The main import commodities include: petroleum, cooking coal, machinery and equipment; consumer goods and grain.

The main imports partners are: China 39.7%, Thailand 14.6%, Japan 11.2%, Germany 7.6%, South Korea 6.2% (2002 est.)

External debt

$12 billion (1996 est.)

There are no figures about economic aid received by North Korea. An estimated $200 million to $300 million in humanitarian aid from US, South Korea, Japan, and EU were received in 1997. There is also much additional aid from the UN and non-governmental organizations.

Currency:

1 North Korean won (Wn) = 100 chon

The currency code is KPW.

The fiscal year corresponds to the calendar year.

See also

zh:朝鲜经济

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