The characteristics of North Korea’s economic system can be explained by its socialist ownership system and a centrally planned economy. The socialist ownership system can be understood as a collective ownership of means of production by society, as specified in North Korea’s socialist constitution. In 1946, North Korea nationalized key industries such as land, factories, mines, and banks, as well as natural resources like underground resources, forests, and water. During the post-war recovery process after the Korean War (1950–1953), North Korea initiated a collectivization movement, creating cooperatives. The centrally planned economy is a system where information necessary for economic decision-making is centralized with the National Planning Committee, representing the central authority, and plans established by the authorities are handed down to lower organizations, which must absolutely obey the orders. This is also known as a centrally controlled command economy.
North Korea’s economic policies have changed names over time, but the fundamental principles have remained consistent. In the 1960s under Kim Il Sung, there were policies such as the Line of Building an Independent National Economy, Simultaneous Development of Heavy Industry and Light Industry and Agriculture, and the Line of Simultaneous Economic and Defense Construction. However, the closed economic line, which encompassed the entire process of production and consumption within the country, was not suitable for the era of globalization, where the international division of labor was active. Under Kim Jong Il, the Military-First Economic Construction Line was the main economic policy, aiming for a militaryindustrial complex structure centered around heavy industry rather than improving the people’s actual living standards. This continued even after the collapse of the Soviet Union and the Eastern Bloc in the 1990s and during the economic and food crises known as the Arduous March, leading North Korea’s economy to continue experiencing negative growth.
In 1999, North Korea’s economy showed signs of recovery but has been stagnant since 2006. Kim Jong Un adopted the Byungjin Line of Simultaneous Economic and Nuclear Power Construction in 2013, but this accelerated industrial imbalance and led to international sanctions against North Korea, adversely affecting its economy. As of 2022, North Korea has recorded an economic growth rate of -0.2% and a per capita gross national income (GNI) of KRW 1.43 million. North Korea’s nominal GDP is around KRW 36 trillion, showing a significant difference compared to South Korea’s KRW 2,161 trillion.
The industrial structure in 2022 consists of 23.1% agriculture, forestry, and fishing; 30.5% mining and manufacturing; 2.2% electricity, gas, and water supply; 10.8% construction; and 33.4% services. Among these, light and heavy chemical industries have shown continuous negative growth rates since 2017, indicating the failure of North Korea’s industrial-focused economic growth policy and overall economic policy. Regionally, in Hwanghae-nam and Hwanghae-buk provinces, which are major granaries in North Korea, the percentage of the population engaged in primary industries is the highest at 58.1% and 45.6%, respectively. Pyeongannamdo has the highest percentage of secondary industry workers at 44.3%, due to the region’s rich coal reserves in the Pyeongannam southern and northern coalfields and major industrial facilities such as the Chollima Steel Complex, Daian Heavy Machinery Complex, and Nampo Refinery. The growth of the service industry in North Korea is generally slow, with relatively low proportions nationwide except in the Pyongyang Directly Governed City.
Under the policy of self-reliance, North Korea heavily relies on coal and hydroelectric power for energy supply. In 2003, the share of primary energy supply by resource was 69.3% coal, 18.2% hydroelectric power, 7.6% oil, and 4.9% other, but as of 2022, the share has changed to 54.6% coal, 30.8% hydroelectric power, 5.3% oil, and 9.3% other, showing a decrease in coal’s share and an increase in hydroelectric power. The proportion of oil in the energy supply fluctuated significantly by year due to North Korea’s unique reliance on imports for oil and its susceptibility to external factors such as international sanctions and North Korea-China relations. North Korea’s food crop production has shown some annual variation but increased slightly from 4.31 million tons in 2004 to 4.82 million tons in 2023. The World Health Organization (WHO) estimates that North Korea requires a total of 6.59 million tons of grain, but current food production does not meet this demand, and the shortfall is partially offset by imports from China or international aid. However, if North Korea maintains its current food production and the international community’s sanctions remain in place, North Korea’s food supply is expected to be unstable in the future.
North Korea has implemented limited foreign trade based on the Line of Building an Independent National Economy. According to this line, North Korea approached foreign economic relations only as a supplement, importing essential raw materials to a minimum, mainly through trade with former socialist bloc countries. However, feeling the limitations of this trade, North Korea began efforts to improve foreign economic relations in the 1970s.
In 1991, North Korea proclaimed the Rajin-Sonbong area as a Free Economic and Trade Zone for the first time and enacted laws related to foreign investment, actively working to attract foreign capital. Subsequently, under Kim Jong Il, the Sinuiju Administrative Region was established in September 2002, the Kaesong Industrial Complex in October, and the Mount Kumgang Tourist Zone in November. However, as inter-Korean relations deteriorated after the sinking of the ROKS Cheonan in 2010, inter-Korean cooperation projects such as the Kaesong Industrial Complex and Mount Kumgang Tourist Zone were scaled back, leading North Korea to expand its opening to China. As part of this, the Rajin-Sonbong Economic Zone was upgraded to a Special City in January 2010, and in June 2011, North Korea and China jointly declared the development and management of the Hwanggumpyong and Wihwa Islands Economic Zone.
The special economic zone policy has been further intensified under Kim Jong Un’s regime and expanded to the entire country. In May 2013, the Economic Development Zone Law was enacted, and 13 economic development zones were established in each province, aiming to attract foreign investment and develop the economy. Sinuiju was also selected as a new special zone. In addition, in July 2014, six more development zones, including the Unjong High-Tech Development Zone, were designated, followed by the Mubong International Tourism Zone in April 2015, the Gyeongwon Economic Development Zone in October 2015, and the Gangnam Economic Development Zone in December 2017. The economic development zones are being developed with specialization in fields such as industry, agriculture, tourism, export processing, and high technology, along with central and local-level development zones, and a total of 27 special economic zones have been designated, including existing special economic zones.
Despite these efforts, international sanctions against North Korea have been strengthened, and internal issues such as poor infrastructure and outdated logistics systems, along with failures like the suspension of the Kaesong Industrial Complex, have hampered the promotion of North Korea’s economic development zones. Despite various policy attempts, North Korea’s trade volume has remained between a minimum of USD 700 million and a maximum of USD 7.6 billion from 2003 to 2022, which is significantly lower than South Korea’s trade volume, which grew from USD 372 billion to USD 1.4 trillion during the same period.
As previously mentioned, North Korea’s planned economy did not function normally, and smooth supply and distribution were not achieved. After experiencing economic difficulties in the 1990s, a black market called jangmadang emerged, where food and consumer goods were traded. On July 1, 2002, North Korea attempted to introduce some market economy elements into its centralized planned economy by introducing the Economic Management Improvement Measures. Subsequently, in an effort to curb the indiscriminate expansion of marketization, North Korea implemented measures such as crackdowns on commercial activities, closure of comprehensive markets, and currency reform. However, beginning in February 2010, North Korea began to ease control again, allowing market activities.
As of 2022, it is reported that there are 414 comprehensive markets operating throughout North Korea, and a new class of donju (entrepreneurs or money masters) has emerged, accumulating commercial capital. They are expanding their influence, from goods distribution through smuggling as well as official and North Korea-China border trade, to construction and real estate, such as apartment construction and sales.