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I was recently at a conference at USC and had the pleasure of commenting on a new working paper paper by Yong Suk Lee from Stanford on the effects of sanctions. Lee uses data collected by the National Oceanic and Atmospheric Administration to study developments in the country’s economic activity. The work is akin to posts I did earlier in the year with Travis Pope on specific regions of the DPRK. We compare the light density of major cities, and illustrate the growing urban-rural divide in the mid-2000s. Travis takes up some the technical issues in a post for NKNews. But Professor Lee clearly pushes this agenda forward.
Lee's theory is that when faced by increasing sanctions, North Korea’s autocratic leadership will shift resources to the urban centers at the expense of the rural periphery. His model highlights fears arising from growing urban-rural income differences; it is more plausible that they are concerned with adverse effects of sanctions on urban constituents, and particularly in Pyongyang. Nonetheless, the findings are interesting. Using an additive index of sanctions events, Lee finds:
- An additional sanction event increased the urban-rural luminosity gap by 1.07 percent over this period and the urban-rural GDP difference by 0.21 percent. In other words sanctions led to gains in economic activity in urban areas where it hurt activity in rural areas, consistent with the shift-of-resources theory. Moreover, the effect of sanctions have a more powerful positive impact on the luminosity of the urban core and seat of central power (Pyongyang) relative to other urban provincial capitals.
- As sanctions increase, luminosity also increases in areas along the Chinese border. This finding has to be treated with some caution given the technical issues noted by Pope, namely the so-called "looming" along the border. But the finding is plausible: formal sanctions push activity into informal channels.
- Financial sanctions appear to have the most effect on changes in luminosity, effectively shifting economic output towards the urban core. This finding is definitely a mixed result for those favoring a harder line. Yes, it would appear that such sanctions are a concern to the leadership. But they effectively offset their effects by shifting resources to core constituencies.
An issue for further consideration is the nature of Lee’s sanctions index. The imposition of discrete sanctions steps--the measure Lee uses--may or may not be correlated with actual trade, and for at least three reasons:
- Sanctions may simply divert trade to new channels, particularly with China; our policy study with the East-West Center demonstrates this point.
- Sanctions may be redundant. The US does little trade with North Korea; an additional measure may have little effect.
- Finally, it is important to recall that China has done its level best to assure that multilateral sanctions do not go after commercial trade. It is not clear that an additional multilateral sanction has much effect on China-DPRK trade; again, we make this point in the East-West monograph cited above.
Lee's work could give solace to both pro- and anti-sanctions groups. On the one hand, Lee shows that the government does notice; sanctions get elite attention. On the other hand, the power of the regime allows it to ignore the adverse effects of sanctions on the vast majority of the population and redirect resources to core constituencies. And of course, as Lee notes drily, the sanctions have had not material effect on negotiations over the nuclear issue.
This is high-quality research of the sort we love to see. Kudos to Lee. The full working paper is available in .pdf here.
