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BOK Working Paper No.2020-17, Estimating Long-term Economic Growth in North Korea: 1956 - 1989

Economic Research Institute (82-2-759-5188) 2020.07.27 1580

Title : Estimating Long-term Economic Growth in North Korea: 1956 - 1989

Author : Taehyoung Cho(BOK), Minjung Kim(BOK)

<Abstract>

This study estimates North Korea’s long-term economic growth rate from 1956 to 1989. After reconstructing production data series for major products such as grain, fabrics, coal, steel, electrical power, cement, etc., each industry’s GDP growth rate is estimated by linking relevant production data to that specific industry’s added value. Seven industries are considered: agriculture, forestry & fishing; mining; light industry; heavy chemical industry; electricity, gas & water supply; construction; and, government services. Based on industry-specific growth rates, the growth rate for the total economy is computed using the chained Laspeyres index number formula. As a result, the North Korean economy is estimated to have grown on average at 4.7% annually from 1956 to 1989. This is roughly similar to the 4.2% for the same period suggested by Kim et al. (2007), a representative study in the field. By period, the economy achieved a high annual growth rate of 13.7% in the late 1950s, while it fell to the 4-5% range in the 1960s and further diminished to grow at a rate of 2-3% in the 1970s and 1980s. In other words, the economic growth of North Korea before 1990 can be interpreted as "one big jump." By industry, mining and manufacturing grew at 7.3% annually over the whole period, while agriculture, forestry & fishing and services grew at 2.5% and 4.6%, respectively. The mining and manufacturing-centered growth in the economy resulted in excessive investment in the same industries and an imbalance in growth among all the industries. Meanwhile, this paper shows that South Korea's per capita income, in terms of real GNI denominated in U.S. dollars, is estimated to have surpassed that of North Korea in the mid- to late 1960s. In addition, North Korea's real GDP per capita grew relatively sluggishly compared to other socialist country cases. At the same time, the estimates of North Korea’s economic growth in this paper are confirmed to be robust, regardless of changes in the share of industrial composition for the year 1990 that depend on the data source. Despite the attempts of this study, the current estimate has limitations in that information about the output of major products may not be accurate, and changes in prices by industry and changes in the exchange rate of the North Korean won were not considered. Further research and improvement efforts will enable a more rigorous and realistic assessment of North Korean economic growth before 1990.

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