North Korea-ECONOMIC DEVELOPMENT AND STRUCTURAL CHANGE

Male workers at the Taean Heavy Machinery and Complex, Taean, Namp'o
Courtesy Tracy Woodward

North Korea's reliance on a command economy has led to an inward-looking development strategy, demonstrated in policies on domestic industrial development, foreign trade, foreign capital, imported technology, and other forms of international economic cooperation. Priority is assigned to establishing a selfsufficient industrial base. Consumer goods are produced primarily to satisfy domestic demand, and private consumption is held to low levels. This approach is in sharp contrast to South Korea's outward-oriented strategy begun in the mid-1960s, which started with light industry in order to meet the demands of growing domestic and foreign markets and export expansion.

As a consequence of the government's policy of establishing economic self-sufficiency, the North Korean economy has become increasingly isolated from that of the rest of the world, and its industrial development and structure do not reflect its international competitiveness. Domestic firms are shielded from international as well as domestic competition; the result is chronic inefficiency, poor quality, limited product diversity, and underutilization of plants. This protectionism also limits the size of the market for North Korean producers, which, in turn, prevents them from taking advantage of economies of scale.

Beginning in the mid-1980s, and particularly around the end of the decade, North Korea began slowly to modify its rigid selfreliant policy. The changes, popularly identified as the opendoor policy, included an increasing emphasis on foreign trade, a readiness to accept direct foreign investment by enacting a joint venture law, the decision to open the country to international tourism, and economic cooperation with South Korea.

Data as of June 1993