How global is North Korea’s economy?

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North Korea may be one of the most self-sufficient economies in the world, but it is far from insulated from global fluctuations. Market price data suggests that North Korea faces much more volatile and often much more extreme price swings than international markets. At the same time, market prices in North Korea tend to move in a relatively similar direction to world prices most of the time, although sometimes in a delayed fashion. This demonstrates that while the North Korean economy is often driven by factors other than global markets, it is far from insulated and isolated from global economic trends.[1]

World food prices

To understand how domestic food prices are affected by fluctuations in international markets, take a look at the graph below (Chart 1) which shows a comparison of rice prices in North Korea with world markets:

Figure 1. Price of rice, North Korea compared to world markets (USD/kg)

Chart by author. Data sources: Daily NK for North Korean data, St Louis Federal Reserve Bank for world prices.

Rice prices in North Korea tend to move in parallel with world markets, but with some variation over time. For example, world rice prices rose from $0.38 in April 2016 by 21% to $0.46 in July. North Korea also saw a price increase of nearly 21% around the same time, but in a delayed fashion. Prices started rising from $0.58 in June 2016 to $0.66 in September and capped at a total increase of 20.7% in October of the same year at $0.70.

Prices also often fluctuate more strongly in North Korea. For example, world market prices rose from $0.36 in November 2016 by 22% to $0.44 in June 2017. North Korea saw a similar price increase of $0.52 in January 2017, double the global rise of 44% to $0.75 in September.

Despite the closure of the North Korean border due to COVID-19, domestic rice prices have moved in line with international prices. In July 2020, the world market price for 1 kg of rice was 0.46 USD and the price in North Korea was very close to 0.50 USD. Until February 2021, prices rose both in global markets and in North Korea, but much more drastically in the latter. The global price rose 17% to $0.54, and North Korean prices rose 42% to $0.71.

The most drastic price swings are probably, at least in part, caused by a lack of information about North Korean markets. While price changes in North Korea are often more drastic, they tend to move in parallel with world market prices.

Figure 2. Percentage change in rice prices, North Korea versus world markets.

Chart by author. Data sources: Daily NK for North Korean data, St. Louis Federal Reserve Bank for world prices.

Information from the outside world on supply conditions takes longer to reach North Korea than in other countries. Additionally, poor infrastructure and communications within the country mean that price information travels more slowly within the country. Thus, rice prices in North Korea could change more drastically based on indications of falling supply or increasing demand, leading to large temporary price spikes. Like Chart 2 shows, for example, that in January 2020 world prices increased by 7.94%. The following month, prices in North Korea soared 27.74%. Global market prices increased again by 0.22% in November 2020, while they increased by 15.86% in North Korea. Since prices are already consistently higher in North Korea, these fluctuations have likely caused significant difficulties.

This trend is similar for corn prices, which are almost constantly higher in North Korea and fluctuate more strongly than in world markets.

Figure 3. Corn prices, North Korea vs world markets (USD/kg).

Chart by author. Data sources: Daily NK for North Korean data, St Louis Federal Reserve Bank for world prices.

Figure 4. Percentage change in maize prices, North Korea versus world markets.

Chart by author. Data sources: Daily NK for North Korean data, St Louis Federal Reserve Bank for world prices.

Data on rice and corn show that movements in world prices generally have an impact on food prices in North Korea. At the same time, they may also differ significantly, underscoring the still relatively closed nature of North Korea’s economy. For example, the drastic price increase from November 2020 most likely stems from an increase in domestic demand due to food shortages following the country’s border closures due to COVID-19.

Oil and fuel prices

Gasoline prices seem less influenced by world oil prices.

Figure 5. North Korean gas price versus world oil prices (USD/kg).

Chart by author. Data sources: Daily NK for North Korean data, St Louis Federal Reserve Bank for world prices.

As this comparison above clearly demonstrates, the rate of change in oil prices in North Korea appears to be heavily influenced by factors other than global price trends.

Figure 6. Percentage change in fuel prices, North Korean gas prices versus world oil prices.

Chart by author. Data sources: Daily NK for North Korean data, St Louis Federal Reserve Bank for world prices.

While there may be occasional periods when the world price and North Korean prices move in tandem, such as in the early months of 2016, this is usually not the case. North Korean gas prices tend to be heavily influenced by the state of North Korea-China relations, as China supplies the overwhelming majority of oil and fuel to North Korea. It is possible that the impact of world oil prices on gas inside North Korea comes exclusively from the share of oil and fuel imports that are private rather than what North Korea receives from China on a non-commercial basis.

Foreign exchange rates

Exchange rates are market prices in North Korea that move in tandem with world markets. This is not surprising since the supply of these currencies is completely controlled by governments and international markets.

Figure 7. Renminbi-US dollar (RMB-USD) exchange rate, North Korean and international markets.

Chart by author. Data sources: Daily NK for North Korean data, St Louis Federal Reserve Bank for world prices.

However, as shown in the graph above (Chart 7), North Korea-specific conditions also have a strong impact. For example, exchange rates have been lower in North Korea than in the rest of the world for most of the COVID-19 period. Indeed, the foreign currency lost much of its economic utility during the border closure. The somewhat higher volatility of exchange rates in North Korea is probably also due to the lack of reliable and adequate market information inside the country.

Conclusion

North Korea’s economy may be more internationally disconnected than most, but, as this analysis shows, it is not immune to changes in world prices. Through legal imports and smuggling, price changes on world markets usually find their way into North Korea as well, albeit with some delay. Price fluctuations in North Korea are more volatile than in global markets, reflecting the lack of transparent and readily available information in North Korean markets. Thus, although it cannot be precisely determined to what extent, even the supposedly self-sufficient North Korean economy is solidly connected to the rest of the world.




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