Economic and Political Changes and Import Demand Behavior of North Korea

In this paper we study some aspects of North Korean economy through her import behavior. We have found that for North Korean economy some non-market factors are important determinants of the import behavior. Those non-market factors are the country’s political situations, its political relation with two communist superpowers, and its relation with the Western industrialized countries especially through foreign debt problems with the Western countries. Only after incorporating those non-market factors, we have a stable import demand function implied in the concept of cointegration. Also, by applying inference procedures for a cointegration model, we have found that most of those non-market factors are statistically significant. However, the impacts of those nonmarket factors are different for different countries and for different commodity groups, which has some interesting implications on the North Korean economy.