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North Korean Economic Development North Korean Economic Development: Special Economic Zones, Global Value Chains, and New Structural Economics By Jason Ross Mallet Major in Korea & East Asian Studies GRADUATE SCHOOL OF INTERNATIONAL STUDIES, SOGANG UNIVERSITY August 2015 North Korean Economic Development: Special Economic Zones, Global Value Chains, and New Structural Economics By Jason Ross Mallet Advisor: Prof. Dr. Si Joong Kim A thesis submitted to the faculty of Sogang University In fulfillment of the requirements for the degree of Master of International Studies in East Asian Studies Major in Korea & East Asian Studies GRADUATE SCHOOL OF INTERNATIONAL STUDIES, SOGANG UNIVERSITY, SEOUL, KOREA August 2015 GRADUATE SCHOOL OF INTERNATIONAL STUDIES SOGANG UNIVERSITY COMMITTEE APPROVAL of a Master’s Thesis submitted by Jason Ross Mallet This thesis has been read by each member of the supervisory committee and by majority vote has been found to be satisfactory. August 2015 Referee Prof. Dr. Yoon Je Cho______________________ (Chairman) Referee Prof. Dr. Si Joong Kim______________________ Referee Prof. Dr. Jae Chun Kim______________________ Acknowledgements Many people helped me to complete the massive undertaking that was writing this thesis. I would like to thank each of them here. First, I would like to thank my advisor, Professor Si Joong Kim, who guided me every step of the way, offering advice without which I would not have been able even to properly begin my work. Next, I would like to thank Professors Yoon Je Cho and Jae Chun Kim, who served on my thesis defense committee and gave both wonderful praise and constructive advice. To my incredible wife Chohee Kim, who supported me day in and day out, continually giving me encouragement and love without fail, I offer my most heartfelt gratitude. To Nathalie Iñiguez, Paul Butler, and Gary Robinson, who edited and proofread my thesis out of the kindness of their hearts, thank you for your patience, keen eyes, and suggestions. I would like to thank my family members, both here in Korea and back home in the United States: my mother, Peggy Mallet, my sister, Stephanie Davis, my brother, Brian Mallet, my father-in-law, Byung Gon Kim, my mother-in-law, Soonae Kim, and my brother-in-law, Hyuk Min Kim. Their constant words of encouragement and support have helped sustain me for these six months. Particularly words of gratitude go to my colleagues in the field of North Korean studies, who helped set me on the path towards writing this thesis and whose goal is the same as mine, the improvement of the lives of ordinary North Korean citizens. Thank you to Inhoe Park, Christopher Green, Soo Ryun Kim, Gregory Pence, and Nova Mercier. Finally, I would like to thank my supervisors and coworkers who, knowing that I was undertaking such a massive task, were extremely helpful in making adjustments to my schedule, workload, and responsibilities, especially Dr. Ok Sun Kim, Thomas Nickel, and Emi Chen. Table of Contents List of Figures ............................................................................................................................................... iii List of Tables ................................................................................................................................................ iv Abstract ......................................................................................................................................................... v Introduction .................................................................................................................................................. 1 Chapter 1 – Relevant Overview of the North Korean Economy ................................................................... 6 1. The Kim Il Sung Era ................................................................................................................................ 6 2. The Kim Jong Il Era ............................................................................................................................. 15 3. The Kim Jong Un Era ........................................................................................................................... 21 Chapter 2 – Obstacles to North Korean Development ............................................................................... 27 1. Heavy Industry Focus ......................................................................................................................... 28 2. Juche and Xenophobia ....................................................................................................................... 34 3. Limited Development Strategy .......................................................................................................... 41 Chapter 3 – New Structural Economics ...................................................................................................... 48 1. Failures of Development .................................................................................................................... 48 2. Successes of Development ................................................................................................................. 53 3. General Outline of Proposed Method................................................................................................ 60 Chapter 4 – Global Value Chains ................................................................................................................. 65 1. Definition and History ........................................................................................................................ 65 2. Benefits to Developing Nations and Impact on East Asia .................................................................. 68 Chapter 5 – The Role of Special Economic Zones ....................................................................................... 76 1. Significance of SEZs ............................................................................................................................ 76 2. Shenzhen SEZ ..................................................................................................................................... 80 3. Rason SEZ ........................................................................................................................................... 89 Chapter 6 – A Plan for Economic Growth in North Korea......................................................................... 101 1. Targeted Industries .......................................................................................................................... 101 Natural Resources ............................................................................................................................. 103 Tourism ............................................................................................................................................. 105 Garments and Textiles ...................................................................................................................... 107 2. Removal of Constraints .................................................................................................................... 110 3. Attracting FDI ................................................................................................................................... 116 i Current Laws ..................................................................................................................................... 117 Areas for Improvement ..................................................................................................................... 119 Types of Firms to Target ................................................................................................................... 122 4. Rewarding Self-Discoveries .............................................................................................................. 123 5. SEZs .................................................................................................................................................. 124 6. Limited Incentives to Targeted Industries ....................................................................................... 127 7. Further Suggestions ......................................................................................................................... 128 Conclusion ................................................................................................................................................. 131 Appendix A – Law on Rason ...................................................................................................................... 134 Appendix B – Known Companies in North Korea...................................................................................... 141 Garment/Textile Industry ..................................................................................................................... 141 Mining Industry ..................................................................................................................................... 141 Bibliography .............................................................................................................................................. 142 ii List of Figures Figure 1-1: Economic Activity in Kim Il Sung Era .......................................................................................... 9 Figure 1-2: North Korea-Japan Trade Volume, 2000-2008 (millions of current US$) ...............................
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