The Sino‐North Korea international economic relationship and the economic development of North Korea

• Date: 01 February 2021
• Published date: 01 February 2021
• DOI: http://doi.org/10.1111/twec.12903
• Author: Jai S. Mah

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wileyonlinelibrary.com/journal/twec World Econ. 2021;44:586–600.

© 2019 John Wiley & Sons Ltd

Received: 10 March 2019

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Revised: 5 October 2019

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Accepted: 12 November 2019

DOI: 10.1111/twec.12903

ORIGINAL ARTICLE

The Sino-North Korea international economic

relationship and the economic development of North

Korea

Jai S.Mah

Division of International Studies, Ewha Womans University, Seoul, South Korea

KEYWORDS

China, economic development, foreign direct investment, North Korea, trade

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INTRODUCTION

The North Korean government had, in principle, pursued an inward-oriented economic development

strategy since the early 1950s. Although its international economic relationship had been minimal

except for support from China and the Soviet Union, support from the latter disappeared with its dis-

integration in 1991. North Korea experienced severe famine during the mid-1990s (Kim, 2017). The

public allocation system broke down, and households were obliged to resort to the black market, bar-

tering and private farming (Haggard & Noland, 2010). The economic situation of North Korea during

the 1990s was disastrous. It continued to record a negative real GDP growth rate each year from 1990

to 1998, and the annual average real GDP growth rate during the same period plummeted to −4.2%

(The Bank of Korea (BOK), 2018).

As a result of the breakdown of the public allocation system, the voluntary black market, called

Jangmadang, emerged. The North Korean government took a series of measures to open the economy

in 1994 (Lee, Kim, & Lee, 2009; Lim et al., 2015). China began to replace the status of the Soviet

Union as the leading partner of North Korea in international economic cooperation. Due to its alliance

relationship and responsibility for North Korea's survival, China has been regarded as one capable of

influencing the outcomes of North Korea's foreign policy decision-making (Choo, 2008). As of 2019,

North Korea relies very heavily on China in both international trade and foreign direct investment

(FDI) inflows.

The Sino-North Korea international economic relationship and its impact on the economic devel-

opment of North Korea have received many policymakers' attention. However, there has been little

rigorous research dealing with it in the literature outside of the Korean peninsula in particular. The

current paper tries to fill the gap between the importance of the topic and the lack of research on

it. Despite China's increasing and dominant role in North Korea's international trade and FDI in-

flows, it is necessary to examine whether China has actually contributed significantly to North Korea's