Authour: Dawool Kim(Seoul National Univ.), Minjung Kim(Bank of Korea), Byung-Yeon Kim(Seoul National Univ.)
This study investigates the relationship between mineral exports to China, North Korea’s most important source of foreign currency acquisition, and its imports of various items from China from the first quarter of 1995 through to the third quarter of 2019. The results from a cointegration analysis suggest that there exists a long-run equilibrium relationship between mineral exports and imports of food, fuel, and some intermediate goods, such as industrial supplies, parts, and accessories. The results from a vector autoregression using first-differenced variables indicate that the short-run relationship between mineral exportsand imports is different between the period before and after the third quarter of 2010. Prior to structural changes, i.e., before the third quarter of 2010, import shocks affected mineral exports. However, after the third quarter of 2010, an increase in mineral exports led to an increase in the import of vehicles, intermediate goods, and luxury goods. This paper shows both the possibilities and the limits that mineral exports can contribute to North Korea’s economic growth. The results, which show that mineral exports have a long-run relationship with intermediate goods, such as industrial supplies, parts and accessories, imply that mineral exports to China could have a positive effect on the North Korean economy. However, the fact that mineral exports do not have any significant effect on the import of machinery and equipment, which helps the accumulation of capital formation, shows that mineral exports have a limited effect on inducing long-term growth in the North Korean economy.