The Efficiency Test of the North Korean Rice Market

This study aims to test whether North Korea’s rice market is efficient from Eugene Fama’s point of view. North Korea is the last communist country with a planned economy. While the government controls some extent of supply and demand and, thus, prices, most economic activities are through self-organized markets. The market efficiency, if any, would provide necessary implications not only to economic theories, but to policy designers of both parts of Korea for economic coordinations that might come shortly. To this end, this study sets three hypotheses for three major rice markets: i) the same price distributions, ii) simultaneous feedbacks among the markets, iii) law of one price holds for the markets. The results show that there is statistically no difference in the mean or variance among the three markets’ prices. The Granger causality test results reveal that the price in Pyeongyang, the capital city and that in Shinuiju, the most active in border-trade with China, affect each other simultaneously. Lastly, the law of one price holds between the Pyeongyang market and the North Korea-China border markets. These results are both surprising and interesting, even though there are still rooms for improvement. The results of this study can serve as a stepping-stone for future research on markets and economic institutions in North Korea.