Since the 2000s, private sectors in North Korea have become active, as reported. Domestic and international researchers, North Korean defectors, and the media actively present indirect evidence regarding market operations within North Korea, following...
Since the 2000s, private sectors in North Korea have become active, as reported. Domestic and international researchers, North Korean defectors, and the media actively present indirect evidence regarding market operations within North Korea, following its reported activation in the private sector. However, North Korean authorities continue to assert themselves as a socialist planned economy. In the context of presented interpretations and claims regarding marketization, there is a need for research to objectively analyze the situation.
The agricultural sector is the foundational industry of the planned economy and is considered a core sector in North Korea, given its connection to basic human survival and the livelihood of farmers. Despite this, even in the 2010s, North Korea's public distribution system has not fully functioned. In this scenario, markets can contribute to improving residents' livelihoods, increasing farm incomes, and alleviating regional food supply imbalances in North Korea. Despite being a crucial subject for investigation in the North Korean economy, research on this is limited due to fundamental constraints in inaccessible areas. Therefore, this study analyzes the state of marketization in North Korea from January 2012 to December 2021, focusing on 9 regions, including core areas, and 24 agricultural products, including rice.
Firstly, this study analyzed the establishment of the law of one price and the distribution structure among regions in the North Korean rice market. The results of verifying the existence of the absolute law of one price showed that, in two cases (F-H, West; D-G, East), an almost perfect law of one price was formed, and a relative law of one price was established throughout North Korea. This indicates that the market mechanism is working to adjust price differences between regions in the North Korean rice market.
Next, this study identified the distribution structure among regions in the North Korean rice market. The analysis revealed one grain-producing region (A) and two distribution hubs (E), (D) in the eastern and western regions. The price difference between the western distribution hub (E) and the China border region (B) was maintained at about 4% (165-216 won). The price volatility of the supply shortage area (D) in the food-producing region and the eastern region was transferred to other regions, while the price volatility of the western distribution hub (E), core area (F), and North-Central border region was not transferred to other regions.
Additionally, this research studied the formation, promotion, and factors of the law of one price for various agricultural products in the North Korean agricultural market. Although there were price differences by region and product, the operation of market adjustment functions reduced the differences, and the law of one price was established for a considerable number of products. However, for products with high dependence on imports, the law of one price was not formed. This could be influenced by the fact that North Korean trade is not freely conducted as part of the planned economy, making free market transactions of traded goods difficult.
The results of this study can be summarized into two points. Firstly, this study empirically analyzed the functioning of market mechanism in the North Korean economy, focusing on the agricultural sector. The research results showed that the law of one price was established for a number of agricultural products, including rice, and this is linked to continuous transactions between markets. Secondly, this study found that the agricultural market has been operating stably since Kim Jong-un took power. North Korea has enacted and enforced regulations related to market operations, and the price system has been reorganized into national/administrative prices, quasi-national/quasi-administrative prices, and market prices. The empirical analysis of agricultural product prices showed that agricultural product prices were formed and adjusted according to price theory, and the volatility of rice prices stabilized after shocks.
Through a series of empirical analyses, this study recognizes the formation of a consumer goods market within North Korea and understands the marketization phenomenon in the agricultural sector. The academic distinctiveness and contribution of this study lie in the analysis of regional agricultural markets in North Korea centered around price theory, as well as the study of the interconnection and economic characteristics of regional markets.
In the future, measures to improve market operations and price determination efficiency in North Korea could be considered as part of economic reform measures. In this case, the introduction of wholesale markets operated under the supervision of North Korean authorities could be considered. If the agreed price in the wholesale market is reasonably determined, it could positively contribute to improving agricultural productivity in North Korea. Especially, since South Korea has abundant experience in operating public wholesale markets, it might be possible to explore ways of inter-Korean agricultural cooperation in this field.
The economic isolation of North Korea has intensified due to international sanctions and the COVID-19 pandemic in the 2020s, and policies strengthening the planned economy have been implemented. When analyzing the changing situation of the North Korean market in the future, the theories and analysis techniques used in this study are expected to be useful.