North and South Korean Economies Compared

Abstract

The comparability of two economies based on different systems, one on the market economy and the other on central planning has many pitfalls. In particular, North and South Korea differ in their respective methods of compiling and measuring aggregate economic variables and other statistics.1 In capitalist market economies, GNP is the total value of all final products and services produced during a given period of time. The aggregate material product (AMP) accounts of a command or centrally planned economy (CPE), however, record productive activity taken on a given territory and cover the sum of the outputs of all separately enumerated production units. One pitfall of this accounting method is that it involves double counting since the values of intermediate products are included in the value of consecutive production. This problem does not, however, exist in the CPE’s definition of National Income (NI). National Income of the CPE is the sum of net product (value added) of all separately enumerated branches of the economy but this measure does not include the so-called non-productive services such as research and development, banking, insurance, education, health, administration and military. The second pitfall involves the reliability and consistency of the available data, the estimates of macro-economic variables as well as growth rates. These problems are related to diverse values used in measuring national outputs, foreign exchange rates and price indices.