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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 29, No. 4, pp.481-503
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2016
Received 02 Sep 2016 Revised 24 Oct 2016 Accepted 02 Nov 2016

Effects of Economic Sanctions on North Korea–China Trade: A Dynamic Panel Analysis

Seung-Ho Jung
Seung-Ho Jung, North Korean Economic Team, Economic Research Institute, The Bank of Korea, South Korea, Tel: +82-2-759-5468, Fax: +82-2-759-5420 shjung@bok.or.kr

JEL Classification: F51, P33, C23

Abstract

This study addresses whether North Korea–China trade dilutes the effectiveness of the unilateral sanctions imposed by South Korea and Japan, and if so, to what extent and in what way. The structural adjustment of North Korea’s export pattern in size and trade type dilutes the effectiveness of the unilateral sanctions imposed by South Korea in particular. South Korea’s economic sanctions significantly boost North Korea’s exports to China, and the export increase has been substantial to cover the loss from the sanctions. North Korea has increased exports to the Chinese domestic market (by general trade) and those passing through China (by bonded trade). These findings show that North Korea has mitigated the economic damage of sanctions by employing various techniques for trade diversion. Changes occur because incentives for both North Korean regime and foreign firms are expedient particularly after South Korea’s sanctions.

Keywords:

Economic sanctions, North Korea–China trade, Dynamic panel model

Acknowledgments

All views expressed are those of the author and do not necessarily reflect the views of the Bank of Korea.

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