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Working Paper 07-7

North Korea’s External Economic Relations

by Stephan Haggard, University of California, San Diego
and Marcus Noland, Peterson Institute for International Economics

August 2007


North Korea’s economic interaction with the world is increasingly centered on China and South Korea, though the nature of the interaction with these two partners is very different: Economic integration between North Korea and China appears to be increasingly occurring on market-conforming terms; its involvement with South Korea has a growing noncommercial or aid component. Haggard and Noland expect the upcoming inter-Korean summit to reinforce this trend. South Korea’s aid to North Korea has exceeded China’s since 1999, and by an increasingly wide margin. Overall, aid and transfers finance more than 40 percent of North Korean imports. On the export side, North Korean exports have grown since 2000. The authors believe improperly recorded transactions and illicit activities to be exaggerated; as a share of total trade or revenues they appear to be falling, possibly due to interdiction, accounting for 14 percent of exports. These results call into doubt the notion that engagement with South Korea is encouraging reform in the North—just the opposite, at least compared to China, it appears to be reinforcing state-oriented development.

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RELATED LINKS

Book: Witness to Transformation: Refugee Insights into North Korea January 2011

Peterson Perspective: North Korea's Immunity to Outside Pressure: Part I December 12, 2012

Policy Brief 10-1: The Winter of Their Discontent: Pyongyang Attacks the Market January 2010

Working Paper 10-2: Economic Crime and Punishment in North Korea March 2010

Paper: FTAs and the Future of US-Korean Trade Relations November 2009

Paper: Implementing the KORUS FTA: Key Challenges and Policy Proposals February 2008

Policy Brief 08-6: North Korea on the Precipice of Famine May 2008

Policy Brief 07-7: The Korea-US Free Trade Agreement: A Summary Assessment August 2007

Policy Brief 06-4: Negotiating the Korea–United States Free Trade Agreement June 2006

Book: Avoiding the Apocalypse: The Future of the Two Koreas June 2000

Book: Free Trade Between Korea and the United States? April 2001

Working Paper 08-4: Migration Experiences of North Korean Refugees: Survey Evidence from China March 2008