The Bank of Korea: "North Korea's Accumulated Capital Increased 24% Over 30 Years... Low Productivity Limits Growth Contribution"

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Although the capital accumulated in North Korea has grown by about 24% over the past 30 years, it is analyzed that it has not significantly contributed to economic growth due to low productivity.

On the 9th, Tae-hyung Cho, head of the North Korean Economy Research Office at the Bank of Korea, researcher Min-jung Kim, and honorary professor Hak-gil Pyo of the Department of Economics at Seoul National University released a report titled "Estimation of North Korea's Capital Stock and Its Implications." According to the report, as of 2018, the capital stock (the total amount of accumulated capital) increased by 24% compared to 1989.

When divided by period, it rapidly increased from 1955 to 1989, sharply decreased in the 1990s, and has been recovering since the 2000s.

As of 2018, the ratio of capital stock to gross domestic product (GDP) is estimated at 3.9 times, which is higher than the typical level of about 3 times in advanced countries.

The research team explained in the report, "This is the result of the denominator, the economic scale, not growing properly, reflecting North Korea's low productivity and inefficiency."

In particular, as of 2018, the proportion of facility assets within North Korea's total capital stock was only 8%, which is very low compared to South Korea's average of 32% from the 1970s to the 1990s.

Due to insufficient investment in facilities and capital accumulation, it is estimated that North Korea's economic difficulties caused by the ban on capital goods imports under sanctions have increased. The research team diagnosed, "In the current situation where North Korea's capital goods imports are banned due to recent high-intensity sanctions, the contraction of investment in facility assets is likely to worsen the negative impact on North Korea's economy by leading to a decline in the efficiency of existing facilities and a decrease in factory operating rates."

Furthermore, they advised, "As North Korea's total factor productivity growth rate continues to decline, it is necessary to enhance productivity and efficiency," adding, "It is necessary to innovate the ownership structure and operation methods of enterprises or farms and transition from a closed economy to an open economy to introduce advanced countries' technology and capital."

This content was produced with the assistance of AI translation services.