The economy of North Korea is a centrally planned economy, following Juche, where the role of market allocation schemes is limited, although increased to an extent. , North Korea continues its basic adherence to a centralized planned economy. With a total gross domestic product of $28.5 billion as of 2016, there has been some economic liberalization, particularly after Kim Jong Un assumed the leadership in 2012, but reports conflict over particular legislation and enactment.
The collapse of the Eastern Bloc from 1989 to 1992, particularly North Korea's principal source of support, the Soviet Union, forced the North Korean economy to realign its foreign economic relations, including increased economic exchanges with South Korea. China is North Korea's largest trading partner. North Korea's ideology of Juche has resulted in the country pursuing autarky in an environment of international sanctions. While the current North Korean economy is still dominated by state-owned industry and collective farms, foreign investment and corporate autonomy have increased.
Since the 1990s, informal market activity has increased, which the government has tolerated. These markets are referred to as jangmadang, and were formed as a result of the economic collapse during the 1990s, which made the government unable to distribute food to its people. After the start of the COVID-19 pandemic, the government tightened border control and began major crackdowns on private economic activities with a shift to a state-run monopoly on food sales, followed by greater centralization of foreign trade, and overall control over the economy.
North Korea had a similar GDP per capita to its neighbor South Korea from the aftermath of the Korean War until the mid-1970s,Maddison, Angus "The World Economy A Millennial Perspective", OECD Development Studies Centre, , (Published 2004), Table A3-c, also available on the Internet at Retrieved May 8, 2013 but had a GDP per capita of less than $2,000 in the late 1990s and early 21st century. For the first time, in 2021, the South Korean Ministry of Unification estimated that the North Korean private sector outgrew the public sector until 2020. However, the 8th Congress of the Workers' Party of Korea introduced new policies in 2021 which aim to strengthen the old command economy; it has been gradually implementing these policies forcing markets and private economic activities to significantly shrink.
In January 2024, the government announced a programme described by analysts as the biggest regional development drives since the Chollima Movement, the 20x10 Regional Development Policy, a ten-year programme to construct new light-industry factories in 20 counties and cities each year. The initiative aims to raise living standards outside Pyongyang and reduce regional disparities, with facilities including food-processing plants, clothing factories, and related infrastructure.
Size of the North Korean economy Estimating gross national product in North Korea is a difficult task because of a lack of economic data and the problem of choosing an appropriate rate of exchange for the North Korean won, the nonconvertible North Korean currency. The South Korean government's estimate placed North Korea's GNP in 1991 at US$22.9 billion, or US$1,038 per capita. In contrast, South Korea posted US$237.9 billion of GNP and a per capita income of US$5,569 in 1991. North Korea's GNP in 1991 showed a 5.2% decline from 1989, and preliminary indications were that the decline would continue. South Korea's GNP, by contrast, expanded by 9.3% and 8.4%, respectively, in 1990 and 1991. Washington: Federal Research Division of the Library of Congress. .
It is estimated that North Korea's GNP nearly halved between 1990 and 1999. North Korean annual budget reports suggest state income roughly tripled between 2000 and 2014. By about 2010, external trade had returned to 1990 levels.
The South Korea-based Bank of Korea estimated that over 2000 to 2013 average growth was 1.4% per year. It has published the following estimates of North Korea's GDP growth: + Economy statistics by year (Bank of Korea estimate) Year GDP (in Bil. KR₩ nominal)GNI per capita (in KR₩ nominal) GDP growth (real) 1990 -4.3% 1995 -4.4%19996.1%20000.4%20013.8%20021.2%20031.8%20042.1%20053.8%20061,058,000 -1.0%20071,070,000 -1.2%20081,174,0003.1%200928,483.51,190,000 -0.9%201029,879.91,242,000 -0.5%201132,227.81,334,0000.8%201233,211.91,371,0001.3%201333,614.21,379,0001.1%201433,949.41,388,0001.0%201534,136.71,393,000 -1.1%201636,103.31,461,0003.9%201736,381.81,464,000 -3.5%201835,670.51,428,000 -4.1%201935,278.61,408,0000.4%202034,660.31,379,000 -4.5%202135,890.81,423,000 -0.1%202236,214.21,430,000 -0.2%202340,194.21,589,0003.1%202443,678.91,719,0003.7%202547,178.81,873,0003.5%
This analysis converts production volume estimates into South Korean prices, so is subject to price changes over time of South Korean goods. According to analyst Andrei Lankov, writing in 2017, a significant number of observers believe that the Bank of Korea is too conservative and the real growth rate is North Korea reported that the government budget has been increasing at between 5% and 10% annually from 2007 to 2015. Reported planned capital expenditure, mainly on roads and public buildings, increased by 4.3% in 2014, 8.7% in 2015 to 13.7% in 2016. According to a North Korean economist, the growth rate was 3.7% in 2017, lifting GDP to $29.6 billion in 2018. The Australian government estimated 1.3% growth in 2017, while the South Korean government estimated −3.5%.
A 2022 publication in the Journal of Asian Economics by Kim Kyoochul disputes the estimates from the Bank of Korea, instead estimating GDP per capita growth of approximately 3% per year from 1999 to 2013 based on analysing satellite imagery of nighttime lights.
In 2018, North Korea's government budget revenue plan overfulfilled 1.4%, an increase of 4.6% over 2017 year.First meeting of the 14th Supreme People's Assembly of North Korea
History
Colonial period and post Second World War Japan colonized Korea, officially annexing it on 22 August 1910 as the Province of Choson. Japan encouraged an inflow of Japanese capital to Korea's less developed economy. A large majority of major firms in Korea became Japanese owned and operated as a result, with key positions reserved for Japanese. Koreans were permitted to work in menial roles under harsh labor conditions. Most of Korea's coal, iron, and crop production was shipped to Japan.
Beginning in the mid-1920s, the Japanese colonial administration in Korea concentrated its industrial-development efforts in the comparatively under-populated and resource-rich northern portion of the country, resulting in a considerable movement of people northward from the agrarian southern provinces of the Korean Peninsula.
This trend did not reverse until after the end in 1945 of the Second World War, when more than 2 million Koreans moved from North to South following the division of Korea into Soviet and American military zones of administration. This southward exodus continued after the establishment of the Democratic People's Republic of Korea (North Korea) in 1948 and during the 1950–53 Korean War.
The post-World War II division of the Korean Peninsula resulted in imbalances of natural and human resources, with disadvantages for both the North and the South. In 1945, about 80% of Korean heavy industry was in the North but only 31% of light industry, 37% of agriculture, and 18% of the peninsula's total commerce.
North and South Korea both suffered from the massive destruction caused during the Korean War. Historian Charles K. Armstrong stated that "North Korea had been virtually destroyed as an industrial society". In the years immediately after the war, North Korea mobilized its labour force and natural resources in an effort to achieve rapid economic development. Large amounts of aid from other communist countries, notably the Soviet Union and the People's Republic of China, helped the country achieve a high growth-rate in the immediate postwar period.
Early efforts at modernization
In 1961, an ambitious seven-year plan was launched to continue industrial expansion and increase living standards, but within three years it became clear this was failing and the plan period was extended to 1970. The failure was due to reduced support from the Soviet Union when North Korea aligned more with China, and military pressure from the U.S. leading to increased defense spending. In 1965, South Korea's rate of economic growth first exceeded North Korea's in most industrial areas, though South Korea's per capita GNP remained lower than North Korea's.
In 1979, North Korea renegotiated much of its international debt, but in 1980 it defaulted on its loans except those from Japan. By the end of 1986, hard-currency debt had reached more than US$1 billion. It also owed nearly $2 billion to communist creditors, principally the Soviet Union. The Japanese declared North Korea in default. By 2000, taking into account penalties and accrued interest, North Korea's debt was estimated at $10–12 billion. By 2012, North Korea's external debt had grown to an estimated US$20 billion despite Russia reportedly writing off about $8 billion of debt in exchange for participation in natural resources development. Besides Russia, major creditors included Hungary, the Czech Republic and Iran.
Largely because of these debt problems and because of a prolonged drought and mismanagement, North Korea's industrial growth slowed, and per capita GNP fell below that of the South. By the end of 1979 per capita GNP in North Korea was about one-third of that in the South.
There were minor efforts toward relaxing central control of the economy in the 1980s that involve industrial enterprises. Encouraged by Kim Jong Il's call to strengthen the implementation of the independent accounting system (, tongnip ch'aesanje) of enterprises in March 1984, interest in enterprise management and the independent accounting system increased, as evidenced by increasing coverage of the topic in North Korean journals. Under the system, factory managers still are assigned output targets but are given more discretion in decisions about labour, equipment, materials, and funds.
In addition to fixed capital, each enterprise is allocated a minimum of working capital from the state through the Central Bank and is required to meet operating expenses with the proceeds from sales of its output. Up to 50% of the "profit" is taxed, the remaining half being kept by the enterprise for purchase of equipment, introduction of new technology, welfare benefits, and bonuses. As such, the system provides some built-in incentives and a degree of micro-level autonomy, unlike the budget allocation system, under which any surplus is turned over to the government in its entirety.