Famine in North Korea: causes and cures

Paper starts from incomplete data ridden with gross measurement errors to construct the underlying data base for a computable general equilibrium model (CGE) of the North Korean economy using cross-entropy estimation techniques. This model incorporates fragmentary information in a rigorous way and allows authors to examine the implications of a number of alternative scenarios. First, models a production-oriented recovery program as the restoration of flood-affected lands. Then models an external assistance program as the acquisition of all food aid necessary to attain the United Nations organizations’ estimates of minimum human needs. The trade-oriented recovery program is modeled as a relaxation of agricultural import quotas and the importation of food on commercial terms. Finally, models a systemic reform program as the elimination of quantitative restrictions on all external trade. Find that

• only the trade- and reform-centered strategies are likely to provide a sustainable solution to North Korea’s problems.
• Because of North Korea’s lack of comparative advantage in the production of grains, the production-oriented strategy fails to attain the country’s minimum human needs target.
• The target could be obtained through international assistance, but it appears that this assistance has been motivated by donors’ non-famine-related foreign policy goals and may not be sustainable.
• Higher levels of assistance depress agricultural prices (and domestic production), rural wages, and the wages of the low skill urban workers, contributing to income inequality.
• In contrast, not only minimum human needs, but also normal human demands are met under the trade-oriented strategy.

However, total normal demand is met only through systemic reform. Under both of the trade- and reform-oriented strategies, GDP rises and wages for all labor groups increase, offering the possibility of a recovery strategy where everyone gains. [author]