North Korean vs. South Korean Economies: An Overview

Although they may share a border and were once united, there is a big difference between the economies of North and South Korea. North Korea operates under a command economy, while its neighbor to the south is a mixed economy, combining free market principles with central planning by the government.

Former U.S. President Bill Clinton described the Korean Demilitarized Zone (DMZ), as “the scariest place on Earth.” The DMZ is a four-kilometer strip that carves the Korean peninsula almost in half running along the 38th parallel. It is the most prominent divide between North and South Korea that has existed since an armistice put an end to the Korean War in 1953. Now, more than 65 years later, the Democratic People’s Republic of Korea (DPRK)—the official name of North Korea—and the Democratic Republic of Korea (South Korea), have drifted apart so much that it is hard to believe they were once one country.

North Korean Economy

North Korea is a communist country led by dynasty politics. It is one of the most isolated economies in the world today. Often labeled an unreformed dictatorial economy, it operates under a tightly controlled command, or planned, economy.

Under a command economy, North Korea's leadership controls all aspects of production, with the government making decisions about its economic development. These economies typically have large surpluses and shortages, as those who make economic decisions don't necessarily have a good grasp on the needs of the general population.

North Korean doctrines of juche (self-reliance) and songun (military-first) have created a repressive atmosphere in the state. Resources for investment, consumption, and economic growth are hard to come by, as the country concentrates on funding for its military and nuclear programs.

The nation places its nuclear ambition over economic development and has also faced sanctions by the U.S. and the European Union. The state receives aid and assistance from international bodies like the United Nations, along with a handful of countries. The North Korean economy deeply relies on its ally mainland China for economic and diplomatic support. This dependence makes the North Korean policy of juche impossible.

The economic growth of the country has been fragile except during a short phase in the 1960s. North Korea faced its worst nightmare in the 1990s as the region was hit by a series of natural disasters that kept its economic growth negative for a decade. Gradually, as the Sino-DPRK economic alliance strengthened, the nation started to develop Special Economic Zones (SEZs) to promote investment in the region.

Despite moves to modernize the economy under the leadership of Kim Jong-un, the country still has some way to go. In 2016, the country tried to spur growth by increasing production and construction projects. But because of the control the government has over the economy, it is unlikely that the country can meet its goals for growth.

In addition, the economic data released by North Korea is not reliable, as the country is often accused of inflating its data, and the majority that is available is often outdated. The most recent data for North Korea's gross domestic product (GDP) are estimates from 2015, according to the CIA Factbook, which was reportedly $40 billion.

However, while North Korea may not be economically advanced, it does have plenty of unexplored natural resources, estimated to be worth trillions of dollars. This is one reason why countries like China and Russia are enthusiastic about investing in North Korea.

South Korean Economy

The “miracle of the Han River,” as South Korea’s economic growth is popularly called, has transformed a nation that was once wracked by political chaos and poverty into a “trillion dollar club” economy. Its economy is characterized as being a mixed economy, with a combination of private freedom and central planning by the government.

South Korea became a part of the Organisation for Economic Co-operation and Development (OECD) in 1996, which marked its development into a rich industrialized nation. In 2004, it joined the elite club of trillion-dollar economies and today it ranks as the world’s 11th largest economy in terms of GDP.

There has been a renewed sense of consumer confidence in the country, due in part to the election of president Moon Jae-in in 2017. He introduced efforts to increase wages and government spending, leading to a rise in exports.

South Korea's economy has surpassed that of its neighbor to the north many times over. North Korea's GDP was estimated to be $40 billion in 2015, while that of South Korea was $1.92 trillion for the same period. South Korea's GDP per capita in 2015 was estimated to be $37,600, while North Korea's was $1,700. South Korea’s trade volume was a gigantic $1.07 trillion in 2013. By comparison, North Korea reported a relatively minuscule $7.3 billion. All figures are from the CIA Factbook. 

While North Korea runs a huge trade deficit, exports (goods and services) play an important role in South Korea’s growth story.

According to World Bank data, exports of goods and services accounted for 44 percent of the GDP in 2018. The World Bank had no reported data from North Korea for the same period. The sector-wise contribution to GDP in 2017 by agriculture, industry, and services was estimated at 22.5 percent, 47.6 percent, and 29.9 percent, respectively in North Korea and 2.2 percent, 39.3 percent, and 58.3 percent in South Korea, according to the CIA Factbook. 

Some well-known South Korean brands are Samsung Electronics, HK Hynix, Samsung Life Insurance, LG Chem, Hyundai Mobis, Kia Motors, POSCO, Hyundai Heavy Industries, Shinham Financial Group, and Hyundai Motors.

Growth for the country, though, is expected to slow down—something most advanced economies expect. According to the CIA Factbook, growth past 2018 is expected to be in the range of 2 percent to 3 percent annually. The country will also have to deal with other socioeconomic issues including youth unemployment, poverty among its aging population, and low productivity.

Key Takeaways

  • North Korea operates under a tightly controlled command or planned economy, which is often labeled an unreformed dictatorial economy.
  • South Korea, which is a mixed economy, has seen significant growth, putting it in the top 20 countries by GDP in the world.
  • Economists find it difficult to analyze the North Korean economy because data is either unreliable or outdated.
  • Although South Korea has taken steps to boost consumer confidence and exports, it is expected to see a slowdown in the future.