Potential economic reforms in North Korea: a dynamic general equilibrium model

Abstract

We use a dynamic general equilibrium model to examine hypothetical market reforms in North Korea. We model partial reform, in which producers choose capital allocations across sectors, with the government still fixing total capital. We also consider two full market reform scenarios. In one, public infrastructure investment remains unchanged, while, in the other, it increases substantially. In all scenarios, we assume a closed economy and a constant military size. Our simulations show little hope for the North Korean economy without boosting infrastructure. Although all of the reforms raise consumption, only significant increases in infrastructure investment bring positive economic growth.

JEL Classifications:

• F15
• F22
• F42

Keywords:

• economic reform
• North Korea
• dynamic general equilibrium
• economic growth