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Policy Reference
A study of North Korean consumer market changes and trade using satellite data
North Korean Economy,
Evaluation Methodology
Author Jangho Choi, Dawool Kim, Jung-kyun Rhee, and Heeseon Lee Series 24-22 Language Korean Date 2024.12.31
As North Korea continues to blockade its borders, it is difficult to study the North Korean economy. The purpose of this study is to analyze North Korea’s market activities by using satellite data in a new way and to identify the characteristics of market development over time. This study is different from previous studies in that it is the first to attempt a quantitative analysis of North Korea’s markets and logistics using satellite data. To complement the analysis of the market and logistics, this study also analyzes the changes in import, wholesale, and retail prices in North Korea, which is also different from previous studies in that it analyzes wholesale and retail margins for the first time to identify the role of wholesale and retail merchants.
The satellite data used in the study are SAR sensor data from the Sentinel 1 satellite and visible band data from the Sentinel 2 satellite, measured from 2017-23, and North Korean inflation data from November 2022 to July 2024. Other sources include North Korea-China trade statistics from China Customs and North Korean literature.
In Chapter 2, we interpret the North Korean authorities’ recent expansion of the socialist mercantile system and increased involvement in the market as an attempt to: absorb the market as a form of state mercantile system and socialist commerce; strengthen the state’s control and involvement in the market through the development of state-owned commerce; increase state revenues by attributing profits from private retailers to the state; and ensure the supply of goods to the North Korean people.
Chapter 3 develops logistics indicators (rail logistics indicators and road logistics indicators) using satellite data. This is the first study to develop logistics indicators for railroads and roads in North Korea. Trade statistics were utilized to verify the developed satellite indicators. The logistics indicators are expected to be useful in estimating the amount of consumer goods supplied to the market.The railroad logistics indicator declined from 2017 to 22 and then rose slightly in 23. Unlike the sharp drop in consumer goods imports due to the border closure immediately after the outbreak of the coronavirus, the train logistics indicator has gradually declined as North Korea’s consumer goods inventories have been gradually cleared. The road logistics indicator showed a contradictory change from the train logistics indicator, and it is unclear whether this is due to the substitution between rail and road or the unique characteristics of trucks. Using consumer goods imports and the market price index to analyze the relationship between logistics indicators and consumer goods supply, we conclude that the rail logistics indicator is a better proxy for consumer goods supply to the market than the road logistics indicator. Road logistics indicators need to be further studied and improved.
In Chapter 4, we develop an indicator of market activity using satellite data. This is the first study to quantitatively analyze market activity. The indicators show that North Koreans’ use of markets is seasonal throughout the year. Market activity decreases during the agricultural season in May and June, when North Koreans are sent out to work, and increases in the summer and fall. On an annual basis, North Korea’s markets appear to have been consistently active from 2017-2019, declining in 2020-2021, and then rebounding during 2022-23. To assess the reliability of the market activity indicator, we compared it to the Bank of Korea’s GDP estimates for North Korea’s service sector. The comparison shows that the market activity indicator and the service sector GDP in the transportation and telecommunications sectors in the ROK are very similar, suggesting that the market activity indicator is an appropriate indicator for monitoring market activity.
Chapter 5 analyzes import, wholesale, and retail prices to calculate wholesale and retail margins. While previous studies only analyzed retail prices, this study analyzed wholesale and retail margins separately to analyze the qualitative growth of the market. The results of the analysis showed that the market price was mainly influenced by import prices, i.e., the original price of goods. The wholesale margins were larger than the retail margins, so the influence of wholesalers on the market was greater than that of retailers. In addition, as the market environment deteriorated, wholesalers further expanded their margins, especially for agricultural products, further exacerbating price instability in the market. From this, we can infer that the better the supply of goods to the North Korean market, the more active the market, the lower the prices, and the lower the wholesale and retail margins. Conversely, as supply to the market decreased, the market slowed down, prices increased, and retail margins increased.
To summarize the above discussion, first, the North Korean market is active and growing in the medium to long term. The coronavirus quarantine and border closures have led to a temporary contraction and shrinkage of the market, but have not halted its growth and expansion. Second, the North Korean market has been characterized by an increase in the supply of goods, i.e., logistics supply, which leads to a decrease in market prices and an increase in market activity. Therefore, the North Korean authorities’ expansion of the state merchant system, i.e., strengthening management and involvement in the market, rather than shrinking/closing the market, seems to be an attempt to increase state revenues and ensure a stable supply of goods to the people by strengthening management and involvement in the active market and replacing some of the roles played by the private sector with the state-owned store network.
The contribution of this study is the novel use of satellite data. This study is unique in that it is the second study to explore the possibility of using satellite data other than nighttime illumination to provide a new view of the North Korean economy. However, the study of the North Korean economy using satellite data is still in its early stages and needs further validation and reliability through follow-up studies. We hope that many researchers will be interested in satellite data and conduct research.
The satellite data used in the study are SAR sensor data from the Sentinel 1 satellite and visible band data from the Sentinel 2 satellite, measured from 2017-23, and North Korean inflation data from November 2022 to July 2024. Other sources include North Korea-China trade statistics from China Customs and North Korean literature.
In Chapter 2, we interpret the North Korean authorities’ recent expansion of the socialist mercantile system and increased involvement in the market as an attempt to: absorb the market as a form of state mercantile system and socialist commerce; strengthen the state’s control and involvement in the market through the development of state-owned commerce; increase state revenues by attributing profits from private retailers to the state; and ensure the supply of goods to the North Korean people.
Chapter 3 develops logistics indicators (rail logistics indicators and road logistics indicators) using satellite data. This is the first study to develop logistics indicators for railroads and roads in North Korea. Trade statistics were utilized to verify the developed satellite indicators. The logistics indicators are expected to be useful in estimating the amount of consumer goods supplied to the market.The railroad logistics indicator declined from 2017 to 22 and then rose slightly in 23. Unlike the sharp drop in consumer goods imports due to the border closure immediately after the outbreak of the coronavirus, the train logistics indicator has gradually declined as North Korea’s consumer goods inventories have been gradually cleared. The road logistics indicator showed a contradictory change from the train logistics indicator, and it is unclear whether this is due to the substitution between rail and road or the unique characteristics of trucks. Using consumer goods imports and the market price index to analyze the relationship between logistics indicators and consumer goods supply, we conclude that the rail logistics indicator is a better proxy for consumer goods supply to the market than the road logistics indicator. Road logistics indicators need to be further studied and improved.
In Chapter 4, we develop an indicator of market activity using satellite data. This is the first study to quantitatively analyze market activity. The indicators show that North Koreans’ use of markets is seasonal throughout the year. Market activity decreases during the agricultural season in May and June, when North Koreans are sent out to work, and increases in the summer and fall. On an annual basis, North Korea’s markets appear to have been consistently active from 2017-2019, declining in 2020-2021, and then rebounding during 2022-23. To assess the reliability of the market activity indicator, we compared it to the Bank of Korea’s GDP estimates for North Korea’s service sector. The comparison shows that the market activity indicator and the service sector GDP in the transportation and telecommunications sectors in the ROK are very similar, suggesting that the market activity indicator is an appropriate indicator for monitoring market activity.
Chapter 5 analyzes import, wholesale, and retail prices to calculate wholesale and retail margins. While previous studies only analyzed retail prices, this study analyzed wholesale and retail margins separately to analyze the qualitative growth of the market. The results of the analysis showed that the market price was mainly influenced by import prices, i.e., the original price of goods. The wholesale margins were larger than the retail margins, so the influence of wholesalers on the market was greater than that of retailers. In addition, as the market environment deteriorated, wholesalers further expanded their margins, especially for agricultural products, further exacerbating price instability in the market. From this, we can infer that the better the supply of goods to the North Korean market, the more active the market, the lower the prices, and the lower the wholesale and retail margins. Conversely, as supply to the market decreased, the market slowed down, prices increased, and retail margins increased.
To summarize the above discussion, first, the North Korean market is active and growing in the medium to long term. The coronavirus quarantine and border closures have led to a temporary contraction and shrinkage of the market, but have not halted its growth and expansion. Second, the North Korean market has been characterized by an increase in the supply of goods, i.e., logistics supply, which leads to a decrease in market prices and an increase in market activity. Therefore, the North Korean authorities’ expansion of the state merchant system, i.e., strengthening management and involvement in the market, rather than shrinking/closing the market, seems to be an attempt to increase state revenues and ensure a stable supply of goods to the people by strengthening management and involvement in the active market and replacing some of the roles played by the private sector with the state-owned store network.
The contribution of this study is the novel use of satellite data. This study is unique in that it is the second study to explore the possibility of using satellite data other than nighttime illumination to provide a new view of the North Korean economy. However, the study of the North Korean economy using satellite data is still in its early stages and needs further validation and reliability through follow-up studies. We hope that many researchers will be interested in satellite data and conduct research.
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