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The North Korean Economy:
Background and Policy Analysis
This report provides an overview of the economy of the Democratic People's
Republic of Korea (DPRK) or North Korea, its external economic relations, attempts
at reform, and U.S. policy options. Along with the United States, North Korea's
major trading partners - China, Japan, South Korea, and Russia - form the so-
called Six Parties, which are currently engaged in talks to resolve issues raised by the
DPRK's development of a nuclear weapons program.
The economy of North Korea is of interest to Congress because the it provides
the financial and industrial resources for Pyongyang to develop its military,
constitutes an important "push factor" for potential refugees seeking to flee the
country, creates pressures for the country to trade in arms and illegal drugs, is a
rationale for humanitarian assistance, is tied to Pyongyang's program to develop
nuclear energy and bombs, and creates instability that ultimately affects the economy
of South Korea. The North Korean threat to sell nuclear weapons material could be
driven in part by its need to generate export earnings. The dismal economic
conditions also foster forces of discontent that potentially could turn against the Kim
regime - especially if knowledge of luxurious lifestyle of communist party leaders
becomes better known or as the poor economic performance hurts even Pyongyang's
elite. The North Korean economy also is a target of economic sanctions.
Economic conditions in North Korea have been dismal for those out of the
center of power. Mass starvation - eased only by international food aid and other
humanitarian assistance - has stalked the countryside. With the termination of aid
from Russia in the form of fuel and other raw materials at concessional prices,
industrial production in North Korea has shrunk, from 60% of the economy in 1987
to 27% in 2002. The country has embarked on a program of economic reforms that
include raising wages, allowing prices to better reflect market values, reducing
dependence on rationing of essential commodities, less centralized control over
factory operations, and opening foreign trade zones for international investment.
North Korea has extensive trade relationships with China, South Korea, Japan,
and Russia. Because of U.S. economic sanctions and lack of normal trade relations
status, U.S. imports from North Korea are virtually nil while U.S. exports in 2003
were $8 million. The DPRK runs a $1 billion deficit per year in its international
trade that it funds primarily through receipts of foreign assistance and various illicit
or questionable activities, such as weapons sales, illegal drugs, and counterfeiting.
In the current Six-Party Talks, economic assistance (including fuel oil) is a
major bargaining chip in seeking the complete dismantling of the DPRK's nuclear
program. Economic policy options include normalizing relations with Pyongyang,
negotiating a trade agreement, lifting economic sanctions, allowing the DPRK to join
international financial institutions, and removing the country from the terrorism list.
This report will be updated as conditions warrant.
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The North Korean Economy: Background and Policy Analysis, report, February 9, 2005; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc805567/m1/2/: accessed December 13, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.