| A Study on Cooperation Policies to Attract Agricultural Investment into North Korea in the Future Reform and Opening Period of North Korea (Year 1 of 2) | |||
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| Author | Choi, Yongho | ||
| Views | 52574 | Publication Date | 2017.02.17 |
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Background and Purpose of Research From the macro perspective of North Korean economic system changes since the economic crisis of the 1990s, the North Korean regime has surpassed the threshold of reform and opening, but no big progress has been made. However, it is expected that North Korea will soon become a path of full reform and opening, given the changes in economic policies and the pace of market activation exposed in the recent 7th Congress. Therefore, it is a good time for the South Korean government to prepare situation- specific countermeasures according to the prospects for North Korea’s reform and opening. In particular, considering the importance of the agricultural sector in the North Korean economy, cooperation policies toward the agricultural sector of North Korea should be sought in accordance with the trends of reform and opening. The main purpose of this research is to explore the cooperation policy issues of the Korean government to attract foreign direct investment (FDI) in the agricultural sector of North Korea according to North Korea’s reform and opening scenarios. Method of Research This is the first year report of the two-year collaborative research with domestic and international experts, entitled ‘A Study on Cooperation Policies to Attract Agricultural Investment into North Korea in the Future Reform and Opening Period of North Korea’, which is led by the Korea Rural Economic Institute (KREI) and sponsored by the Korea Council of Economic and Social Research Institute. An analysis on the East German and Eastern European transition countries has been conducted by Leibniz Institute of Agricultural Development in Transition Economies (IAMO) in Germany. Ewha Womans University and the Research Institute for North Korea Development of the Export-Import Bank of Korea have participated in the analysis of Asian transition countries such as China and Vietnam. The empirical analysis on the determinants of FDI in the agricultural sector of the transition countries has been conducted jointly with Incheon National University. As for the reform and opening trends of North Korea and the transition process of past communist countries, the researchers basically have collected and summarized a vast amount of domestic and overseas previous research. In addition, they complemented the data and conducted expert interviews by an overseas survey on Germany and Romania. Advisory meetings using domestic and international experts networks formed by KREI made a great contribution to the prospect of North Korea’s reform and opening scenarios. Moreover, the researchers attended various symposiums on topics related to North Korea, listened to diverse information and opinions, and referenced important notes during the preparation of the report. Finally, using the econometric methodology and the statistical data published by FAO, EBRD and World Bank, the researchers empirically analyzed the determinants of FDI in the agricultural sector of the transition countries. Research Results and Implications To overcome the economic crisis North Korea is attempting reformative measures to partially or gradually integrate the market economy system into the traditional planned economic system. In addition, it is also promoting the opening policy by a new form centered on the “economic development zone” rather than the existing special economic zone. Along with these trends, North Korea’s agricultural policies have also changed considerably. First, the collective agriculture system is shifting toward a family farming system. Second, the incentive system is being strengthened by expanding farmers’ share of agricultural products. Third, the agriculture management structure is shifting toward the expansion of autonomous management rights for cooperative farms and the revitalization of the market. Despite the efforts of the North Korean government, however, the agricultural sector has not been able to achieve visible results. The transition countries have been reformed and opened due to political needs and economic demands. Promoting the reform and opening of the socialist countries is commonly influenced by important factors such as the economic crisis arising from the inefficiency of the socialist economic system and the unbalanced distribution of resources, the reduction of support by the Soviet reform and openness, and the generation replacement of political power. The process of reform and opening is different according to the conditions of each country. The Eastern European countries such as Romania are radical while the Asian socialist countries such as China and Vietnam have experienced gradual reform and opening. The reform of the agricultural sector played a very important role in the transition process. This is because the agriculture in the transition economies generally has a high proportion of their GDP and thus the agricultural sector has a large political influence. Likewise, in North Korea, the agricultural sector is likely to become the forerunner of economic reform. The form of North Korea’s reform and opening is expected to vary depending on the internal conditions of North Korea, the internal conditions of South Korea, and the international conditions. If the conservative political forces in the North Korean regime fail to accept economic and social changes and internal conflicts explode, radical reform and opening will happen by sudden changes. On the other hand, gradual reform and opening can occur by changes in Chinese attitude or quiet regime replacement. What institutional improvements and policy efforts are needed in order to attract FDI in North Korea’s agricultural sector in the process of reform and opening? In particular, which of the various institutional and policy variables are more effective to attract FDI in North Korea’s agricultural sector? In order to answer these questions, we analyzed what factors were important determinants of attracting FDI in agriculture to Eastern European countries. For pure agriculture as a primary industry, empirical results show that the larger the size of the agricultural economy and the better the agricultural public institutions are maintained, the higher the likelihood of attracting agricultural investment. Also, they indicate that the higher the degree of progress of the corporate management restructuring and the better equipped the agricultural financial system, the greater the investment scale. For food manufacturing as a secondary industry, on the other hand, the size of the agricultural economy, privatization of small enterprises, and the maintenance of public institutions in the agricultural sector were found to have a significant influence on the possibility of attracting agricultural investment. Also, it was found that price liberalization plays an important role in determining the investment scale. The following are challenges of the South Korean government to attract FDI in agriculture of North Korea under the gradual reform and opening scenario. First, the South Korean government should actively lead North Korea’s continuous reform and opening. Second, in the beginning of reform and opening it should actively seek out successful cases in which economic gain can be realized through attracting agricultural investment. Third, it should contribute to lowering risks and eliminating uncertainty about the multinational firm’s entry into the North Korean agricultural economy. Fourth, it should actively promote inter-Korean cooperation in the process of North Korea’s reform and opening. Finally, it should actively support North Korea to form cooperative relations with neighboring countries on the Korean peninsula. The following are challenges of the South Korean government to attract FDI in agriculture of North Korea under the radical reform and opening scenario. First, the South Korean government should endeavor to convert the agricultural distribution system based on the existing state control into the market distribution system in North Korea. In addition, it should strive to ensure that North Korea can have the pricing system determined according to the demand and supply in the market. Second, it should strengthen promotion and education so that farmers can have sufficient information and experience in the process of privatization of agricultural land and reorganization of agricultural management structure. Third, it needs to improve its ability to provide financial services and to prepare for rising financial costs and interest rate fluctuations. Fourth, it should ensure that privatization in North Korean agriculture is swiftly promoted so that subsequent reforms can be resilient. Finally, it should support the inefficient and bureaucratic public institutions in North Korea so that they can be quickly revamped to fulfill their roles. Researchers: Choi Yongho, Kim Younghoon, Lim Chehwan, Kim Yunjung, Ko Kabseok and Yun Youngseok Research Period: 2016. 1. ~ 2016. 12. E-mail address: yonghochoi@krei.re.kr |
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