The September issue features eight articles on recent trends and future challenges in North Korean economic research, along with a retrospective on Dr. Lee Seok’s 20-year contributions, who retired in August 2024 as editor-in-chief of the KDI Review of the North Korean Economy and head of the research division. North Korean economic studies currently face significant challenges, including strained inter-Korean relations, North Korea's isolationist policies, and waning domestic interest. The research focuses on three core areas: North Korea’s domestic economy, inter-Korean cooperation, and reunification readiness. The increasing use of big data and recent data disclosures from the Ministry of Unification have been positively received. Scholars are encouraged to investigate the regime’s structural changes and their wider implications, while also adopting a global perspective on policy. Although satellite-based research is expected to expand, careful interpretation remains crucial. The foremost challenge is securing reliable data, particularly given the suspension of economic cooperation, pandemic-related border closures, and China’s anti-espionage law. Ongoing efforts to gather and validate data, along with international collaboration, are vital for deepening analysis and sharing insights into North Korea’s economy.

In July, services production and facilities investment increased, while industrial production, retail sales, and construction investment decreased. In August, job growth increased and consumer prices growth slowed down. In July, total production fell (down 0.4% m-o-m and up 2.7% y-o-y) , as industrial production (down 3.6% m-o-m and up 5.5% y-o-y) and construction production (down 1.7% m-o-m and down 5.3% y-o-y) declined while services production increased (up 0.7% m-o-m and up 2.2% y-o-y). In July, facilities investment increased (up 10.1% m-o-m and up 18.5% y-o-y) , while retail sales (down 1.9% m-o-m and down 2.1% y-o-y) and construction investment (down 1.7% m-o-m and down 5.3% y-o-y) decreased. In August, exports grew by 11.4 percent from a year ago, driven by increased exports of the IT sector including semiconductors. The daily average of exports increased by 13.7 percent from a year ago. In August, the Consumer Sentiment Index (CSI) dropped by 2.8 points to 100.8 month-on-month. The Composite Business Sentiment Index (CBSI) fell by 2.6 points to 92.5 in August, and the CBSI outlook for September also decreased by 0.7 points to 92.7 month-on-month. In July, the cyclical indicator of the coincident composite index decreased by 0.6 points from the previous month, and the cyclical indicator of the leading composite index remained unchanged. In August, the economy added 123,000 jobs compared to the previous year and the unemployment rate fell by 0.1 percentage points from a year ago to 1.9 percent. In August, the Consumer Price Index (CPI) grew by 2.0 percent from the previous year. The index excluding food and energy prices increased by 2.1 percent, and the index excluding agricultural and petroleum products increased by 1.9 percent. The CPI for basic necessities rose by 2.1 percent. In August, Korean equity prices fell driven by concerns over a potential slowdown in profitability of big tech and AI-related companies. The Korean Treasury Bond yields fell driven by growing expectations of an interest rate cut by the U.S. Fed, and the Korean Won strengthened against the dollar. In August, housing prices and Jeonse (lump-sum deposits with no monthly payments) prices continued to rise (up 0.24% m-o-m and up 0.22% m-o-m, respectively). As prices have continued to moderate and stabilize recently, the Korean economy has been able to show a sustained recovery, mainly driven by robust performances in the export and manufacturing sectors. Though domestic demand has shown a moderate recovery, particularly in facility investment and services, the pace of the recovery has varied across sectors. The global economy has generally been on a recovery trend, mainly driven by a rebound in trade and a shift in monetary policy in major economies. However, the pace of recovery differs across regions. In addition, geopolitical risks such as the ongoing Russia-Ukraine war and the potential for further escalation in the Middle East conflict, and concerns about an economic slowdown in major economies, are contributing to increased uncertainty. Against this background, the Korean government will seek to implement key policy tasks in a timely manner, including ensuring price stability, providing customized support for small business owners, and shoring up domestic demand. These efforts will also be pursued along with policies outlined in the ‘Dynamic Economy Roadmap’ which seeks to improve the quality of life of Koreans and enhance the sustainability of the Korean economy.

The Impact of US Export Controls on Korean Semiconductor Exports / Hanhin Kim and Jaehan Cho This study empirically investigates the impact of recent US export controls on China on South Korea’s semiconductor exports. We analyze South Korean export data to shed light on the repercussions of US export restrictions on a third country. Our findings reveal a significant decline in Korean semiconductor exports following the October 2022 imposition of US controls. This decline was most pronounced in the memory, discrete devices, and discrete device components subsectors of the semiconductor industry. In addition, we observed a decrease in unit prices, especially for memory semiconductors, pointing to downward pressure on South Korea’s high-value-added semiconductor exports. These results provide some evidence of substantial negative impacts of US export controls on South Korea’s semiconductor industry, and particularly with regard to its high-tech products. Trump Tariffs and Roundabout Trade / Tadashi Ito Although there are many news articles of tariff dodging via the rerouting of made-in-China goods through third countries, relabeling these goods as made in Mexico or made in Vietnam, there have been no scientific studies on this issue. This paper provides statistical evidence regarding whether such practices are taking place. Using monthly trade statistics at the most disaggregated level and analyzing data up to 2019, the year before the COVID-19 shock, little evidence of roundabout trade is found. With an extended dataset up to 2023, overall there is little sign of roundabout trade, although some slight signs of roundabout trade are found for Mexico and Vietnam. Experts to the US and Imports from China during the US-China Tariff War: Evidence from Regional Trade Data in Vietnam / Kazunobu Hayakawa This study empirically investigates how the exports of downstream products to the US change the imports of their upstream products from China during the US-China tariff war. To accomplish this, we use province-level trade data in Vietnam, known to be a country that increased its exports to the US market in place of China, i.e., known to enjoy a trade diversion in the US market. The use of regional trade data enables us to capture the input-output linkages more precisely. Specifically, focusing on the trade in general and electrical machinery industries from January of 2019 to December of 2023, we regress imports of upstream products from China on exports of their downstream products to the US, finding that the rise of exports of downstream products to the US significantly increases imports of their upstream products from China. On the other hand, the rise in these products does not significantly increase the imports of upstream products from Japan, Korea, and Taiwan. Furthermore, the inputoutput linkage between exports to the US and imports from China was found to be greater in provinces with better business environments in terms of entry costs, transparency in public services, and public support to businesses. Economic Effects of Unemployment Insurance for Entrepreneurs in South Korea / Jiyeon Kim This paper aims to examine the economic impact of the implementation of an unemployment insurance (UI) program for entrepreneurs in South Korea. Despite facing labor market risks similar to paid employees, entrepreneurs are often not eligible for UI in many countries. South Korea, where entrepreneurs represent over 20% of the workforce, is considering a design of UI for entrepreneurs, with the goal of providing coverage to this group by 2025. This study examines how the addition of UI for entrepreneurs would impact the economy using a model of entrepreneurship based on a search and matching framework. The study’s findings suggest that the implementation of UI for entrepreneurs would lead to increased business closures and reduced hiring, resulting in a slack labor market, which in turn would reduce social welfare overall. However, social welfare can be improved by subsidizing UI contributions paid by entrepreneurs, which provides the greatest improvement in social welfare compared to other social protection systems such as unemployment assistance.