KOREA FOCUS
North Korea’s Per Capita GDP and Comparison with South Korea
Kim Cheon-koo

Senior Researcher
Hyundai Research Institute


I. Introduction
 
Understanding North Korea’s economic situation and its changes is useful in establishing a rational and appropriate North Korea policy, a prerequisite in the lead-up to a unified economy. If North Korea can sustain economic growth to improve the livelihood of its people and narrow the gap with South Korea, it would have a positive effect on the South’s economy. For example, the economic cost of unification could be significantly reduced. But if the North’s economy rapidly contracts, leading to political turmoil, major risks would ensue.
 
To assess North Korea’s economic level and make international comparisons, the Hyundai Research Institute developed a North Korean GDP estimation model in 2010. Because of the limited official data released by North Korean authorities, the institute mainly uses the North’s infant mortality rate and amount of grain production as substitutes for economic statistics. The infant mortality rate sensitively responds to poor personal hygiene, inadequate nutrition intakes, reduced benefits of medical care, and aggravated healthcare environment, all of which change in tandem with economic cycles.

 

II. Estimation of North Korea’s Nominal Per Capita GDP in 2013
 
1. North Korea’s Economic Circumstances in 2013
 
1) Internal Circumstances
In 2013, North Korea improved its grain production thanks to favorable climate conditions, and tried to increase industrial output by emphasizing light industries. According to the Food and Agriculture Organization, North Korea’s grain production was estimated at 5.27 million tons in 2013, an increase of 4.7 percent from 5.03 million tons in 2012. Rice production stood at 2.90 million tons, up 8.2 percent from 2.48 million tons in 2012, while corn production fell 1.9 percent to 2 million tons in 2013 from 2.04 million tons in 2012.
 
Meanwhile, North Korea increased its spending on light industries by 5.1 percent year-on-year to boost output and also ramped up expenditures on basic industries, such as electricity, coal, metal, and rail transportation, by 7.2 percent. Overall, the central government increased spending by 5.9 percent in 2013 compared to the previous year.
 
 

2) External Circumstances
North Korea-China trade rose sharply above 2012 levels, mainly due to increased mineral shipments from the North. Total trade volume amounted to $6.55 billion in 2013, 10.4 percent rise from $5.93 billion in 2012. North Korean exports to China climbed 17.2 percent, from $2.49 billion to $2.91 billion, and imports grew 5.4 percent, from $3.45 billion to $3.63 billion. The North’s trade deficit with China thus narrowed from $960 million in 2012 to $720 million in 2013.
 
Trade between the two Koreas, hit by temporary shutdown of the Kaesong Industrial Complex, plunged 41.7 percent to $1.15 billion during the same period. It was the lowest level since 2005, when it hit $1.06 billion. North Korea’s exports to South Korea plummeted 42.3 percent to $620 million in 2013, compared to $1.07 billion in 2012. Imports also sank 40.9 percent from $900 million to $530 million over the cited period.


 
As North Korea’s foreign relations further soured in 2013, aid to the North declined, too. International aid to North Korea totaled $63.06 million in 2013, down 46.5 percent from $117.79 million in 2012. Fourteen countries, including South Korea, Switzerland, Sweden, Russia and Norway, provided humanitarian assistance, down from 20 countries in 2012 and 17 countries in 2011.
 
South Korea delivered economic aid worth $12.343 million to North Korea, accounting for 19.6 percent of the total, followed by $10.57 million, or 16.8 percent, by Switzerland, and $4.63 million, or 7.3 percent, by Sweden.
 

 

 

 

2. North Korea’s Nominal Per Capita GDP in 2013

 

North Korea’s GDP was calculated by using correlations between infant mortality rates and per capita GDP data of 198 countries. Regression analysis was conducted by using a fixed-effects model. The log-transformed value of per capita GDP was a dependant variable and the log-transformed value of infant mortality rate was an independent variable. The data sources were the International Monetary Fund for the former, and child mortality and U.N. data for the latter.

 

North Korea’s grain production was used as a weighted value to calculate the country’s annual infant mortality rate from its comparable rates released every five years. According to the Food and Agriculture Organization, which surveys the North’s crops annually, North Korea’s grain production continued to increase from the 1970s to the early-1990s, but fell sharply in the mid-1990s and hit its lowest level in the late 1990s. A slow but steady recovery from the so-called “March of Tribulation” of the mid-1990s did not begin until the 2000s.

 

North Korea’s infant mortality rate showed the worst conditions in the 1990s. It rapidly surged during the “March of Tribulation,” but has slowly fallen in recent years. 
 
Regression analysis shows North Korea’s nominal per capita GDP in 2013 was $854, compared to $815 in 2012. A look at the trend of North Korea’s nominal per capita GDP reveals it has risen an average of 5.3 percent in recent years: from $770 in 2011 to $815 in 2012 and to $854 in 2013.

 

North Korea’s nominal per capita GDP is only 3.6 percent of South Korea’s nominal per capita GDP of $23,838 and is lower than those of other socialist countries, including China ($6,569), Vietnam ($1,896) and Laos ($1,490). Asian countries with comparable income levels are Bangladesh ($899) and Myanmar ($915)..
 

 

III. Economy and Society of the Two Koreas
 
Method of Comparison: The current economic situation in North Korea is similar to South Korea’s status during the 1970s. This paper compares the conditions of the two time frames to assess the economic and social differences between the two Koreas.

 

Nominal Terms: North Korea’s current nominal per capita GDP of $854 corresponds to South Korea’s level in 1976 when it stood at $807.

 

Real Terms: South Korea’s nominal per capita GDP in 1970 was $277, which is equivalent to $1,285 in the current value.

 

Agriculture, forestry and fisheries sectors account for 23.4 percent of North Korea’s current industrial structure, which is akin to the primary sector of South Korea in the 1970s.
 
Areas of Comparison: This report examined South and North Korea in six areas ― agriculture, mining and manufacturing, foreign trade, energy, health, and education. The variables used in agriculture were farming population, cultivation area and agricultural productivity, while those in mining-manufacturing were steelmaking, cement, chemical fertilizer, automobile production and shipbuilding tonnage. Foreign trade factors included exports, imports and trade balance; energy sector included power generation and consumption; health was based on life expectancy and per capita nutrition supply; and education gauged the number of educational institutions and the number of students per 10,000 people.

1. Agriculture
 
North Korea’s agricultural sector is similar to that of South Korea in the early 1970s. Currently, the majority of North Koreans are engaged in agriculture but productivity remains very low. The North’s annual agricultural production per farmer is about half a ton, similar to that of South Korea in 1970, and remains at only one-third level of the South’s 1.57 tons in 2012.
 
North Korea’s current farming population is about 8.57 million, or 36.8 percent of the nation’s population, similar to South Korea’s comparable share of 44.7 percent in 1970.

 
2. Mining and Manufacturing
 
North Korea’s mining and manufacturing sector also is at a comparable level to South Korea’s in the early 1970s. Its current production of cement and chemical fertilizer totals 6.446 million tons and 476,000 tons, respectively, close to South Korea’s output in 1970.
 
The North’s steel production currently stands at 1.222 million tons, equivalent to the 504,000 tons produced by South Korea in 1970. Currently, the North produces 4,000 motor vehicles a year, less than the South’s level in 1970, and its shipbuilding tonnage is 214,000 tons, similar to South Korea’s in the early 1970s.
 
3. Foreign Trade
 
North Korea’s foreign trade has failed to achieve sizable growth because of its isolation from the rest of the world. The North’s total export volume of $2.88 billion and imports at $3.93 billion correspond to those of South Korea in the early 1970s. Its total trade volume is a mere 0.6 percent of South Korea’s in 2012.
 
While South Korea records continuous trade surpluses, North Korea remains trapped in chronic trade deficits.

 
4. Energy
 
In this area, too, North Korea remains at South Korea’s early 1970s level, with the growth of its energy industry stalled since 1970.
 
In 2012, North Korea’s per capita energy consumption was 0.50 ton of oil equivalent (TOE), falling short of the South’s 1970 level of 0.61 TOE, and is only 9.0 percent of the current South Korean level of 5.57 TOE. North Korea’s power generation totaled 21.5 billion kWh in 2012, similar to South Korea’s 1975 level, and accounts for only 4.2 percent of the South’s current level of 509.6 billion kWh.
 

 

 

5. Health
 
In terms of health, North Korea approaches the level of South Korea in the mid-1970s. North Koreans’ caloric intakes fall short of the South Koreans’ 1970s level, and their life expectancy remains at the South Koreans’ level in the 1980s.
 
North Koreans’ current daily per capita nutrient intake is about 2,078 kcal, less than the corresponding figure of 2,370 kcal in South Korea in 1970. As of 2012, North Koreans’ animal protein intake is only 6.4 percent of their total nutrient intake, far lower than 17.0 percent in South Korea.
 
Life expectancy in the North stands at 68.4 years, which is 12.8 years less than South Korea’s 81.2 years, as of 2012. It is similar to the South’s level in the 1980s.
 

6. Education
 
The ratio of the highly educated in North Korea is similar to that of South Korea in the early 1980s. Currently, the number of college students per 10,000 people in North Korea is 212, similar to South Korea’s level in the early 1980s, or one-third of South Korea’s 644 in 2012. South Korea had 160.3 college students per 10,000 people in 1980, and 308.8 in 1985.
 
North Korea shows a higher level in education compared to other sectors, which will likely benefit economic integration of the two Koreas in the future.

 
IV. Implications
 
North Korea’s economy is stuck at the level of South Korea’s in the 1970s without adequate food supplies. Therefore, South Korea needs to help the North’s economy achieve self-reliance by reinvigorating inter-Korean economic cooperation, continuing to provide humanitarian aid to the North, and narrowing the gap in economic strength between the two Koreas.
 
To help catapult the North Korean economy, South Korea will need to invest in the North’s social overhead capital, energy, natural resources development and logistics network, laying the foundation for its industrial growth. For instance, the South should focus investments in key industries such as steelmaking and oil refining, building industrial infrastructure such as power plants, roads and ports, and creating industrial complexes for small and medium-sized businesses.
 
South Korea ought to continue to provide humanitarian aid through the United Nations and other international organizations for infants and children and others who are most vulnerable to damages caused by low income and foot shortages in the communist state. Better harvests in 2013 helped North Korea’s general food situation, but stunted growth and undernourishment of children remains very serious. South Korea should continue to provide grain, food and medical supplies, regardless of pending political and military issues.
 
The wide income gap between South and North Korea implies heavier burden on the South to finance unification costs. Therefore, South Korea should try to narrow the gap in economic strength between the two sides to prepare for unification. To minimize the unification cost, the South should help the North resuscitate its economy and build a sustainable economic system. The South should prioritize investing in North Korean industries and regions that can produce greater synergic effects so that post-unification expenditures will deliver maximum benefits.
 

[Economic Review, 14-11, No. 582, March 14, 2014,
Hyundai Research Institute]