Sanctions Evasion and the Emergence of the Informal Economy in North Korea

Abstract

This paper seeks to answer core questions about the development of the informal economy. More specifically, it asks why the leadership in North Korea allows informal economic activities to continue despite the fact that an emerging market economy poses a potentially existential threat to the survival of the Kim regime?

Scholars have traditionally posited one of two theories to explain the emergence of North Korea’s informal economy. The first argument, championed by Marcus Noland and Stephan Haggard, suggests that North Korea permitted informal economic activity to address food shortages in the wake of the famine. The second argument, which is not necessarily contradictory to the first, suggests that the Kim regime’s inconsistent attempts to quash market activity were unsuccessful.

While neither aforementioned explanation is wholly incorrect, a third, but little explored, alternative explanation contributes to a more comprehensive understanding of the Kim regime’s response to North Korea’s emerging informal economy. This paper proposes that the primary motivation behind the Kim regime’s presently tacit acceptance of the informal economy is due to the regime’s need to evade United States and United Nations (UN) sanctions.