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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 21, No. 2, pp.361-385
ISSN: 1225-0279 (Print)
Print publication date 31 May 2008
Received 08 Jan 2008 Revised 18 Jun 2008

The Participation of North Korean Households in the Informal Economy: Size, Determinants, and Effect

Byung-Yeon Kim ; Dongho Song
Associate Professor, Department of Economics, Seoul National University, Shillim-Dong, Gwanak-Gu, Seoul, South Korea kimby@snu.ac.kr
Postgraduate Student, Department of Economics, Seoul National University, Shillim-Dong, Gwanak-Gu, Seoul, South Korea dh519@snu.ac.kr

JEL Classification: J22, J24, O17, P20

Abstract

This paper uses a survey of North Korean refugees to look at the size and the determinants of informal economic activities. In addition, we estimate the effect of internal economic participation on labor supply in the formal economy. We find that the informal economy is very large in North Korea with the share of income from informal economic activities at 78% of the total income of North Korean households. However, there is little evidence that supports a deepening informalization from 1996 to 2003. It is estimated that such activities are primarily driven by survival motives in North Korea. We also find that workers who have secondary jobs reduce working hours in the formal economy. These results suggest that increases in informal economic activities can shrink the formal economy, but preventing such activities is difficult.

Keywords:

Informal economy, Labor supply, North Korea

Acknowledgments

We are very grateful to Jihong Kim and Taejong Kim who participated in designing the questionnaire and conducting the survey. We would like to thank Insook Lee for her steadfast efforts on the survey project. Without their expertise and commitment, the completion of this survey would not have been possible. We thank two referees for their valuable comments. B-Y Kim gratefully acknowledges the financial support from the Advanced Strategy Program (ASP) of the Institute of Economic Research, Seoul National University.

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