Economic and Political Changes and Import Demand Behavior of North Korea

Abstract

We study some empirical aspects of North Korean economy implied in its import behavior in the period before the collapse of Soviet Union. Our analysis is based on econometric inference for a cointegration relation and some model determination methods. We have found that for North Korean economy some non-market factors are important determinants of the import behavior. The non-market factors are related to the country¡¯s political situations, its political relation with two communist superpowers, and its relation with western industrialized countries. Our results show that the non-market factors have different impacts on imports from different countries and imports for different commodity groups, which enables us to find some interesting aspects of North Korean economy. Among several results those with the following two implications are of particular interests. First, the two communist superpowers were overall stable and the most important suppliers to North Korean economy regardless of the political situation while Western countries filled the deficiency, if any, caused by Sino-Soviet dispute. Second, the foreign debt problem had significantly negative impacts on imports from the capitalist countries, which is true even after the new open door policy initiated in 1984.