Author : Yongshin Cho(Economic Research Institute, Economic Security Studies Team)

<Abstract>

This paper examines how adverse economic shocks reshape the income distribution in an economy characterized by quasi-marketization, where market activities expand in the absence of fully institutionalized market-supporting institutions. Using repeated cross-sectional survey data on North Korean defectors from 2012 to 2020, the analysis exploits a plausibly exogenous economic shock during 2014–2015 in North Korea driven by climatic conditions, energy supply constraints, and external trade disruptions. Focusing on changes in distributional shape rather than average inequality, the paper employs the Median Relative Polarization framework and relative distribution analysis. The results show a significant increase in informal income polarization in the post-shock period, driven primarily by an expansion of the lower tail of the distribution rather than by gains at the top. A range of robustness checks indicates that these findings are not solely driven by sample selection. The findings highlight that in quasi-marketized economies without established market-supporting institutions (i.e., fair competition policies, taxation, and social safety nets), adverse shocks may generate asymmetric distributional adjustments—manifesting primarily as lower-tail polarization—rather than uniform increases in inequality