North Korean Growth in 2014: Once More with Feeling!

July 27, 2015 6:15 AM

Once again the Bank of Korea has released its 2014 GDP estimate for North Korea and once again I feel compelled to provide commentary. This release, after all, is one of the few times that one can sound like an economist while commenting on North Korea. But sounding like an economist is not the same as actually providing economic analysis and my fundamental reaction to the Bank of Korea report is one of skepticism for reasons I have rehearsed ad nauseum in the past: sketchy data, questionable methods, politicization, etc.

So what can one say? The BOK estimates that North Korean GDP grew at 1 percent last year, a statistically insignificant slowdown from the estimated 2013 growth rate of 1.1 percent. This figure may well be an underestimate of the true growth rate: a considerable share of economic activity is off-the-books and almost certainly uncounted for in the North’s own undisclosed internal statistics. So if the 1.0 percent figure were coming from the North Korean government, I would say that it is almost surely an underestimate. But the South Korean figure seems to be more based on physical counting measures, which ironically may actually better capture the actual level of economic activity than figures reported to the authorities.

That said, counting methods are notoriously weak when it comes to the service sector and anecdotal evidence suggests a considerable increase in service sector activity both in construction (estimated 1.4 percent growth) and private retail and personal services (0.5 percent growth). Government services were estimated to have expanded by 1.6 percent. It is unclear how if at all any allowance has been made for variations in quality. Casual observation suggests that the quantity and quality of retail and personal services has increased (at least in Pyongyang) while the quality of public services in the hinterland such as health and education may well have declined. And while we’re talking about services, I wonder what BOK believes the impact was of the Ebola travel ban, which basically stopped tourism during the fourth quarter of 2014. It is hard to know how to reconcile these observations with their figures.

In short, caveat emptor!

https://www.youtube.com/watch?v=0eQaf2f1ei0

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Marcus Noland Senior Research Staff