North Korean and South Korean Economies: An Overview

South Korea and North Korea took dramatically different paths following the end of fighting in the Korean War in 1953. When it comes to their economies and living standards, they could hardly be more different.

The two Koreas are separated by the demilitarized zone, a four-kilometer wide strip running along the 38th parallel which splits the Korean peninsula roughly in half. To the south of the DMZ, South Korea operates one of the world's most advanced economies, while to the north its neighbor is a military dictatorship that keeps a tight fist on the economy. The North continues to face challenges in food and nutrition among other difficulties.

Key Takeaways

  • North Korea's economy is isolated and tightly controlled. It is generally unable to meet the basic needs of its people.
  • Economists find it difficult to analyze the North Korean economy because data is either non-existent, unreliable, or outdated.
  • South Korea's economy is one of the world's most advanced and productive, ranking 12th globally in terms of annual output.
  • South Korea's economic growth depends heavily on exports, and the nation leads the world in shipments of semiconductors and memory chips.

North Korean Economy

Long dominated by the Kim dynasty, North Korea is one of the most isolated countries in the world. Kim Jong-un's military dictatorship keeps tight control of the economy, including almost all aspects of production and distribution.

The Kim family has long prioritized its own political survival—and, relatedly, its ambition to develop nuclear weapons—over the nation's economic development. Because North Korea is so isolated—partly because of international sanctions over its nuclear program—and what little data the government releases isn't considered reliable, not much is known for sure about its annual economic output.

In 2015, the CIA estimated that the country's GDP was approximately $40 billion.

Lacking the Basics

With the exception of a short period in the 1960s, when its economy briefly eclipsed that of its southern neighbor, North Korea has been generally unable to meet the needs of its people. North Korea's economy suffered a devastating recession in the 1990s, when it shrank by nearly a third, and starvation is thought to have claimed the lives of several hundred thousand people.

Things have improved but deprivation is still common. According to the World Bank, more than half of North Koreans lacked access to electricity in 2017, while recently installed Chinese generators supply more than a third of the electricity in the nation's capital, Pyongyang.

Help From China, Other Nations

The North Korean regime espouses the doctrine of Juche, or self-reliance, but the state regularly receives aid and assistance from international bodies like the United Nations, along with a handful of countries. It relies heavily on China, its biggest supporter, for economic and diplomatic assistance.

Small Steps Toward Liberalization

The North Korean government has allowed small-scale free-market activities in recent years, giving rise to a growing middle class of traders and small entrepreneurs. It has also been reported that Kim is seeking to take further steps to develop and reform the economy.

Any path forward in developing North Korea's economy is likely to begin with exploiting its natural resources, estimated to be worth trillions of dollars. This is one reason why neighboring countries like China and Russia are enthusiastic about investing in North Korea, particularly its dysfunctional transportation network.

South Korea's "Miracle" Economy

South Korea's economic transformation since the Korean War has been dubbed the "Miracle on the Han River." Once wracked by poverty and political chaos, South Korea has joined the "trillion dollar club" of the world's leading economies, and enjoys membership in the Group of 20.

South Korea now has the world's 12th largest economy in terms of gross domestic product, and is home to some of the world's most iconic brands, including Samsung Electronics and Hyundai Motors. It is the world's top exporter of semiconductors (although it is facing increasing competition from China) and memory chips and one of the world's top car exporters.

While North Korea's trade with the outside world has almost totally ceased, South Korea has become one of the world's most important exporters.

Challenges for South Korea

A robust democracy, South Korea ranks high in economic freedom, although the government still plays a role in developing industrial strategy. The nation depends heavily on exports, which account for about 40% of GDP. So any slump in world trade usually hits the country hard. In recent years, South Korean policymakers have stressed the need to develop alternative growth strategies, including by strengthening domestic demand, but little progress has been made so far.

Growth in South Korea has been slowing and is expected to slow further—something most advanced economies experience. According to the CIA Factbook, growth past 2018 is expected to be in the range of 2% to 3% annually. The country is also struggling with socio-economic issues including youth unemployment, poverty among its elderly, and unfavorable demographics.