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Is North Korea's Economy Really Growing?

On Friday, Bank of Korea, South Korea's central bank, released numbers showing that North Korea's GDP increased 1.3 percent in 2012 -- the country's fastest growth rate since 2008. But Marcus Noland, a North Korea expert at the Peterson Institute for International Economics, is skeptical. "I think 1.3 percent is a joke," he said. "Don't trust any datum about North Korea that comes with decimal points attached."

In a phone interview with Foreign Policy, Noland outlined his views on the North Korean economy, which he says is "probably growing." The exchange has been edited and condensed for clarity.  

Foreign Policy: How does the Bank of Korea come up with these numbers?

Marcus Noland: They use whatever techniques they can to come up with estimates of physical output: model or simulation farms, to try to simulate grain output. They may use satellite photography, they may have spies.... The way these things are usually done is with an input-output table, which is like a giant recipe book for the economy: to manufacture an automobile, you need four tires and an engine, etc. They previously used South Korea's input-output table, which is probably inappropriate for the North.  

The story is that they have a secret North Korean input-output table; not sure if a spy stole it, or if they've constructed it. I've never seen it, but I've heard such an input-output table exists. I don't know if these numbers come from the South Korean table or the stolen one.

FP: So what is the situation with North Korea's economy? 

MN: I take the numbers to mean North Korea's economy is probably growing. Anecdotal evidence suggests that things are getting better in Pyongyang and stagnating elsewhere. Nutritional surveys don't show much improvement.

What's interesting is the sources they attribute to this growth. Agriculture is up 3.9 percent, and is one-third of the economy -- but it's heavily dependent on weather. So North Korea could be growing because of the weather. 

FP: What about the joint factory project with South Korea in Kaesong?

MN: Inter-Korean trade, which is nearly all Kaesong, is up 15 percent, but remember this is 2012 (before the North Koreans shut the zone down this year). Unless something big happens, the numbers are going to look really bad in 2013.

FP: How do you explain North Korea's belligerence in the first half of 2013?

MN: It's very hard for me to come up with any explanation that would explain their behavior that would be internally consistent or coherent: Eric Schmidt goes to Pyongyang and gets snubbed. Dennis Rodman visits and spends hours with Kim Jong Un getting drunk. Rodman comes back and says that Kim Jong Un doesn't want war. Soon after Pyongyang make a statement threatening a first-strike nuclear attack, which to my knowledge neither China nor the USSR has ever done. They shut down Kaesong. They say they want to reopen Kaesong. They basically blow up the meeting in which they discuss reopening Kaesong. On the level of economic policy or diplomacy, it's hard to look at that set of actions and divine any sense of internal consistency or coherency.

FP: So what does that mean?

MN: I honestly don't know. There are obviously ways to rationalize it -- you could say the Rodman thing is completely idiosyncratic, for example. To me, this doesn't look like a regime that has a clear vision of its future or where it wants to go.

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