The economy of North Korea has been in a continued state of flux since the early 1990s, spurred by the disintegration of the Soviet Union. Other centrally planned economies in similar straits have opted for domestic economic reform and liberalization of trade and investment. Despite its recent moves toward limited economic opening, North Korea has thus far avoided making any fundamental changes. Its leadership seems determined to maintain tight economic control.

North Korea possesses extensive economic resources with which to build a modern economy. These include sizable deposits of coal, other minerals, and nonferrous metals. The river systems of the Yalu, Tumen, and Taedong, and lesser rivers supplement North Korea’s coal reserves and form an abundant source of power. Although the mountainous terrain prohibits paddy rice cultivation except in the coastal lowlands, corn, wheat, and soybeans grow well on dry field plateaus. The country’s hilly areas also provide for timber forests, livestock grazing, and orchards.

North Korea inherited the basic infrastructure of a modern economy at the end of the Japanese colonial era (1910-45) and achieved considerable success in spite of the of the socialist government’s restrictive controls of labor, capital, and rates of consumption. These controls had a cumulative effect, and by the beginning of the 1960s, the economy had reached a stage where delays and bottlenecks began to grow. Slow economic growth continued into the 1970s and 1980s. Based on Juche, the self-reliant economic policy emphasizes heavy industry. This policy, coupled with economic difficulties, has resulted in a poor record of exports, chronic trade deficits, and a sizable external debt, as well as foreign trade primarily oriented toward other communist countries. At the outset of the 1990s, North Korea’s economy was in a deep slump and in great disarray, and was significantly behind its neighbour, the Republic of Korea (South Korea), which has become a world-class economic powerhouse.

North Korea’s economy remains one of the world’s last centrally planned systems. The role of market allocation is sharply limited – mainly in the rural sector where peasants sell produce from small private plots. There are almost no small businesses. Although there have been scattered and limited attempts at decentralization, as of mid-1993, P’yongyang’s basic adherence to a rigid centrally planned economy continues, as does its reliance on fundamentally non-pecuniary incentives. As the country faced the 2000′s, more famines came, although South Korea aided the country with fertilizer and livestock shipments. In addition, the nuclear weapons program in 2006 created sanctions against the country. The collapse of socialist governments around the world in 1991, particularly North Korea’s principal benefactor, the Soviet Union, have forced the already depressed North Korean economy to fundamentally realign its foreign economic relations. Economic exchanges with South Korea have even begun in earnest. A recent attempt at creating Chinese-style economic zones is representative of North Korea’s current movement towards capitalism.

About 81% of North Korea’s terrain consists of high mountain ranges and partially forested mountains and hills separated by deep, narrow valleys and small, cultivated plains. The most rugged areas are the north and east coasts. Good harbours are found on the eastern coast. Pyongyang, the capital, near the country’s west coast, is located on the Taedong River.

Although most North Korean citizens live in cities and work in factories, agriculture remains a rather high 25% of total GNP, although output has not recovered to the levels of the early 1990s. While trade with the South has expanded since 1988, no physical links between the two remain, and the infrastructure of the North is generally poor and outdated.

North Korea suffers from chronic food shortages, brought about by the combined effects of a reclusive regime, successive natural disasters, structural constraints — such as little arable land and a short growing season — as well as the fact that food products are deliberately diverted away from citizens and into the military. These shortages were exacerbated by record floods in the summer of 1995 and continued shortages of fertilizer and parts. In response to international appeals, the US provided 500,000 tons of humanitarian food aid in the period July 1999-June 2000 through the UN World Food Programme and through US private voluntary organizations.