Measuring North Korean Marketization: An Index Approach

Abstract:Since the traditional central planning system virtually collapsed in the 1990s, growth of marketization has become the most prominent feature of the North Korean economy. In this article, we evaluate the development of de facto and de jure marketization of the 2000s in three dimensions of price liberalization, privatization, and financial system development. Accordingly, we construct a marketization index using the survey results of North Korean refugees and expert evaluations of the North Korean economy. The marketization level generally increased over the years despite the unfavorable foreign and domestic environments such as international sanctions and the anti-market polices of the mid-2000s. Among the three evaluation categories, price liberalization has advanced the most, whereas financial system development has developed the least. In particular, de facto privatization has rapidly expanded since Kim Jong Un came into power. However, from the economic reform perspective, the overall institutionalization level of the informal economy in North Korea still remains low compared to those of former socialist economies.