North Korea
In the world community, North Korea is rightfully considered the most unfree and closed country in the world. In The Economist’s 2021 Democracy Rankings, North Korea is ranked 165th out of 167 countries, ahead of only Taliban-controlled Afghanistan and Myanmar. Emerged in 1948 under the strict supervision of the Soviet Union, the Democratic People’s Republic of Korea was an alternative project to the capitalist South. The country is still a planned economy, where the activities of private companies are strictly limited and regulated. At the same time, political competition is absent and cannot arise in the realities of communist Korea. The repressive nature of the regime and the reluctance of North Korean leaders to forge economic ties with Western countries have made the country one of the most economically isolated countries in the world.
South Korea
South Korea is the absolute opposite of its communist neighbor. In the same ranking of democracies by The Economist, South Korea is in 16th place, ahead of the UK and Japan. Indeed, historians acknowledge that South Korea is extremely open to international relations and foreign investment. Warm relations play a special role in foreign policy with the United States, good feelings for which have been formed since the Korean War of 1950-1953. In the 21st century, South Korea has begun to capture the minds of the Western public even more producing world-famous music, cinema, and games. As a result of comparing North and South Korea, it is clear that the latter will heavily outperform the former.
To assess the performance of both countries, one useful strategy is to compare key indicators between the two countries. The first and one of the most important indicators is GDP per capita. It is not a surprise that South Korea’s GDP per capita value is approximately 40 times higher than North Korea. Knowing that these countries are located nearby and have the same land area, it is fascinating to admit that the difference between communist and capitalist countries is huge. Another conclusion that can be made from this graph is that the North Korean economy always ensures stability of its economy. At the same time, South Korean GDP is moving up and down. The reason is that the closed economy and strict isolation help the North Korean government to ensure the same mediocre quality of life, which ensures Kim’s dictatorship’s political stability. North Korea cannot have the same economic boost as the South has been experiencing since 2009 because of the impossibility of opening the economy for foreign investments.
Starting with this part, it becomes obvious that the repressive and closed regime in North Korea hinders objective economic evaluation in the region. The most famous databases of the UN and the World Bank do not provide reliable data on the situation in the DPRK. Therefore, only the inflation rate in South Korea is plotted on the chart. As it can be seen, since 2012, inflation has been declining significantly and has been consistently low. This fact makes the South Korean Won one of the most stable currencies in the world. As for North Korea, it is possible to find only fragmentary data from news and specialized economic resources. After reviewing these data, it becomes clear why the North Korean regime hides the real figures. An average of 551% is unthinkable in today’s world. The North Korean Won has no significant value, being a highly volatile currency.
Further, one of the indicators necessary for comparison is the unemployment rate. Here it becomes clear that this indicator is unrepresentative for a comparison of the capitalist and communist countries. Comparing capitalist countries, high unemployment rates can show that the government is pursuing or failing to implement economic policies that are not quite right. In the same example, North and South Korea have stable low unemployment rates. The problem is that the very essence of communist regimes is to provide practically full employment among the population. Often, unwillingness to work is punishable by law and prosecuted. For example, according to the US Department of State (2021) report, “Forced labor continued to take place in the brick making, cement manufacturing, coal mining, gold mining, logging, iron production, agriculture, and textile industries”. In addition, the problem of unavailability of objective information for independent journalists and scientists makes the data on unemployment unreliable.
The fourth indicator is the percentage of exports of total GDP. For South Korea before the COVID-19 pandemic, it did not drop below 40%. No data was found for North Korea and absolute exports were chosen as an alternative. Here you can see a colossal difference, which means that these two countries cannot be seriously compared. The alienation of the North Korean regime from the developed world makes their level of exports minimal.
The final indicator is the national public debt as a percentage of GDP. In South Korea, this figure was in the range of 30-39 percent and only in 2020 exceeded 40%. This suggests that South Korea will need to pay off the debt after recovering from the effects of the COVID-19 pandemic. The closeness of North Korea to the outside world is the reason why this indicator is not available for North Korea.
Reasons for Economic Growth Variation
The difference in economic performance can be explained by various reasons. Firstly, due to the nuclear program of North Korea condemned by the world, many personal and sectoral sanctions have been imposed on the country’s economy. This makes it impossible to actively participate in global trade. Secondly, the political stability of the Kim regime’s survival takes precedence over economic growth. Third, surviving on subsidies and trade with communist China makes the country dependent on a powerful neighbor, which halts growth. Looking at the situation from the South Korean side, the huge growth of the economy was caused by the successful policy of the Korean government to build global trade and technology development. The business environment in South Korea is one of the most attractive in the world, which allows the economy to grow on foreign investment.
International Trade
The comparison of North and South Korea proved that an open economy and global economic cooperation lead to a better living for citizens. It confirms World Bank’s (2018) assertion that “stronger open trade policies enable economic growth for all”. While South Korea receives foreign investments, North Korea lives in economic isolation and faces chronic economic problems. For example, concerning the influence of international trade, the great incorporation of South Korea into global value chains heavily contributes to economic growth (Masiero et al., 2017). In global value chains, Korea mostly uses foreign intermediates in the export (Masiero et al., 2017). In other words, Korea is using the sourcing of intermediates through its value chain to increase productivity and sales. The value-added production scheme also serves as a good tool to compare North and South Korea. While value-added production in the North approaches zero, the South does a lot to increase the value of their raw materials through investments in innovations.
Value-added trade measures
Students often make the mistake of relying solely on the total amount of imports and earnings in order to calculate the surplus or deficit. In fact, this approach does not take into account many complex situations. For example, many trading partners enter into transactions in which goods move between two or more countries multiple times. Also, goods can be transited through a third country for the convenience of logistics networks. Often, simple absolute numbers of dollars earned and spent exclude these transactions. Value-added trade data helps to account for such situations. Modern scientists are constantly trying to develop more representative metrics for such cases. Without the use of value-added trade data, data can be seriously skewed.
Key Industries in North Korea
North Korea exports non-technological resources such as electrical wires and some basic equipment. In addition, electricity is mainly transferred to China. One of the most secret industries in North Korea is the production and supply of weapons. It is mainly supplied to the Middle East and Africa, provoking instability in these regions (Episkopos, 2020). In fact, earnings from trade are minuscule compared to developed countries.
Key Industries in South Korea
As for South Korea, the industries it has developed are much more technologically advanced and innovative than those of North Korea. First, it is mechanical engineering, which occupies a leading position in the world. South Korea is famous for its auto brands such as Kia, Ssangyong, and Hyundai. Secondly, various integrated circuits saturate the entire world market, including the US, Europe and developing countries like Russia. Thirdly, a large part of South Korea’s income comes from shipbuilding, which includes both cargo and passenger ships and warships.
References
Cho, S. (2020). Why North Korea could not implement the Chinese style reform and opening? The internal contradiction between economic reform and political stability. Journal of Asian Security and International Affairs, 7(3), 305-324. Web.
Council on Foreign Relations (CFR). (2022). What to know about sanctions on North Korea. Web.
Episkopos, M. (2020). North Korea has made billions of dollars selling weapons around the world. The National Interest. Web.
Masiero, G., Ogasavara, M. H., Jussani, A. C., & Risso, M. L. (2017). The global value chain of electric vehicles: A review of the Japanese, South Korean and Brazilian cases. Renewable and Sustainable Energy Reviews, 80, 290-296. Web.
North Korea inflation rate. (2022). Trading Economics. Web.
The Observatory on Economic Complexity. (2022a). North Korea. Web.
The Observatory on Economic Complexity. (2022b). South Korea. Web.
US Department of State. (2021). 2021 country reports on human rights practices: North Korea. Web.