The political economy of North Korea: implications for denuclearization and proliferation
AbstractDespite North Korea’s turn away from economic reform and the constraints of the second nuclear crisis, the country has in fact become more economically open. But it has emphasized closer economic relations with China and other trading partners that show little interest in political quid-pro-quos, let alone sanctions. Yet the US can still exercise economic leverage by going aggressively after third-party financial intermediaries. This particular form of sanction does not require multilateral coordination, since foreign banking institutions that conduct significant business in the United States have a strong interest in avoiding institutions that the United States Treasury has identified as money-laundering or proliferation concerns. There is some evidence that North Korea moderated its missile proliferation activities during periods when rapprochement with the United States, and to a lesser extent Japan, was a priority, but in the absence of such interest and as legitimate trade, investment, and aid dry up, the incentives to intensify proliferation activities increase. The internal organization of the North Korean economy has important implications for any policy seeking transformation via engagement. The economy is structured in such a way that outside economic ties are still largely monopolized by state-owned enterprises and other gatekeepers, such as the military. Under such circumstances, the precise design of engagement policies requires very close scrutiny. Even nominally commercial relations can be exploited if the North Korean counterparties believe that they are ultimately political in nature, subsidized and thus vulnerable to blackmail. If economic ties are truly commercial in nature, those choosing to trade and invest with North Korea do so at their own risk. Under these circumstances, private actors will make economic decisions fully factoring in political risk, and North Korea will bear the costs if it chooses to renege on commitments or fails to provide a supportive policy environment.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15919.
Date of creation: Jun 2009
Date of revision:
North Korea; sanctions; transition;
Other versions of this item:
- Stephan Haggard & Marcus Noland, 2009. "The Political Economy of North Korea: Implications for Denuclearization and Proliferation," Economics Study Area Working Papers 104, East-West Center, Economics Study Area.
- P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
- F5 - International Economics - - International Relations, National Security, and International Political Economy
- F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephan Haggard & Marcus Noland, 2008.
"Famine in North Korea Redux?,"
Working Paper Series
WP08-9, Peterson Institute for International Economics.
- Stephan Haggard & Marcus Noland, 2007. "North Korea’s External Economic Relations," Working Paper Series WP07-7, Peterson Institute for International Economics.
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