Between Collapse and Survival in North Korea: an Economic Assessment of the Dilemma

The current North Korean reform focuses on an open door policy without much import liberalization and on a partial domestic liberalization limited to the consumer sector. This can be considered a variant of the so-called East Asian growth model pursued in South Korea, Taiwan, and China. Although the basic directions of such a model are understandable, the intensity of the reform measures is not radical and strong enough, and the economy has exhausted domestic resources to rely on and is having difficulty in getting access to external resources. Collaboration from the US and South Korea is the most critical elements for the success of North Korean strategy since these will lower political uncertainty and give the regime access to international capital and markets.They may have at most two or three years to rely on and try a big push from the outside, which can hopefully give the system a new momentum for recovery. Otherwise, collapse is certain since they do not have their own ability to revitalize the economy. Success or failure of the next three-year reform will determine the future of North Korea. Failure, including the sudden stop of the reform by internal coup, could lead to collapse of the North Korean regime (hard landing), which will bring in radical reforms either by a new North Korean leadership or by a South Korean takeover. Success could lead to a widening and deepening of reforms to deal with the main body of the domestic economic system (Chinese style soft landing), or alternatively give room for stop-go style (Romania or Cuba style) muddling through.