Any initiative aimed at persuading Chairman Kim to cease hostilities and set aside North Korea’s nuclear armament needs to include, at a minimum, a viable economic development plan that ensures the survival and continued legitimacy of the regime. Such a plan has to take into account North Korea’s special circumstances: while market-oriented reforms and external opening represent an essential part of any development plan, North Korea’s state enterprises with their mostly obsolete production technology and lack of managerial know-how face likely default when exposed to market forces, resulting in the widespread loss of jobs.
The establishment of Special Economic Zones (SEZs), as in China under Deng Xiaoping, offers a pragmatic starting point, where foreign direct investment can flow into zones operating according to market principles with cheap labor, allowing modern technology and practices to enter selectively while minimizing systemic risks and shielding the rest of the country from potential harmful effects. Workers released from their jobs must be provided with a safety net, possibly in the form of a public works program aimed at projects such as road and rail construction or agriculture. At the same time, informal, non-state firms that currently operate in a gray area but, as the consequence of “marketization from below” and “benign neglect,” contribute 70% of North Korea’s GDP[1], must be legalized, and a viable banking sector that supports entrepreneurship needs to be established.
Within a framework that safeguards stability but also offers a phased-in reform strategy aligned with Chairman Kim’s priority of maintaining system integrity, the viability of the economic development plan hinges on two mutually reinforcing conditions:
(1) the rapid achievement of economic growth rates that exceed historical benchmarks in the region, set by China’s growth experience in the 1980s in the range of 10% to 12% per annum, thereby enhancing the legitimacy and preserving the integrity of the regime after denuclearization,
(2) the establishment of a resilient foundation for long-term economic modernization.
These dual objectives must be achieved within a decade, Kim’s likely time horizon for securing a legacy of prosperity.
By our estimations, such a growth target would require a $300 billion development fund financed by a grant. A strategic plan for economic development should identify leading sectors where North Korea has a comparative advantage, such as infrastructure, tourism, IT, fishing, and real estate, where the government should invest intensively in the development of these sectors. This investment can transform these sectors, therefore acting as engines for North Korea’s economic development. This level of investment, if strategically deployed and sectorally optimized, reflects both the minimum needed to establish regime-preserving growth and the upper limit of what might plausibly be negotiated in a summit context. Such a scale of investment, if paired with gradual market-oriented reforms, could lay the foundation for a self-sustaining economic trajectory beyond the initial period of external support.
Moreover, reforms must be transformational. For North Korea to achieve meaningful and sustained development, ideological shifts toward market logic and global integration are necessary. Without such transformation, even well-financed initiatives risk failure due to institutional resistance and inefficiency.
By pursuing this strategy, the DPRK could follow a growth path similar to that of Taiwan, South Korea, and China during their respective periods of rapid development. In this context, external assistance is not an end in itself, but a transitional mechanism to enable the structural transformation needed for long-term prosperity, while simultaneously preserving internal cohesion and political continuity during the reform process. Ultimately, the allocation of funds must be optimized across sectors to maximize return on investment. The article estimates sector-specific needs with this principle in mind, identifying infrastructure, human capital, institutional reform, and industrial upgrading as key pillars.
- Conventional economic concepts
To jump-start the DPRK’s economy, we expect that foreign donor countries are willing to provide annual developmental funds in the order of magnitude of $30 billion. The fact that South Korea’s military budget alone, at $48 billion in 2023, far exceeds this amount suggests that this should not be beyond the capacity of potential donors. Aside from financial resources, modernization of the North Korean economy requires market-oriented reforms and the opening of the economy to trade and foreign direct investment to support the necessary transfer of know-how and technology.
To estimate the level of investment required to support at least 10% economic growth, we adopt a two-stage approach over a ten-year period. First, we estimate baseline investment needs using assumed fiscal multipliers that reflect varying levels of institutional efficiency. Second, we assume that without reform, North Korea’s annual growth would remain near 1%, and we then calculate the additional investment required to close the remaining 9-percentage-point gap under various reform scenarios. These scenarios reflect differing degrees of reform ambition. In the minimal reform scenario, foreign direct investment (FDI) increases modestly from 1% to 3% of GDP, trade openness improves by 10 percentage points, and institutional quality remains unchanged, yielding a low multiplier of 1.5. The moderate reform scenario assumes FDI reaches 5% of GDP, trade openness expands by 15 percentage points, and institutional quality rises from a score of 1 to 4, comparable to Vietnam, supporting a multiplier of 2.0. The aggressive reform scenario envisions substantial improvements, with FDI reaching 10% of GDP, trade openness increasing by 30 percentage points, and institutional quality improving to a score of 7, similar to South Korea, leading to a multiplier of 2.2. Taken together, the total cumulative 10-year investment required under these scenarios amounts to approximately $60.56 billion for minimal reform, $44.97 billion for moderate reform, and $40.34 billion for aggressive reform, yielding a rough average of $50 billion over the next decade. Estimating investment needs and designing sectoral allocations is not merely a technical exercise; it is a matter of strategic optimization. The use of reform-adjusted multipliers provides a framework to assess how institutional improvements can reduce required capital inputs while increasing the sustainability and effectiveness of growth.
- Which sectors to invest in
Only a portion of the developmental funds will stay in the DPRK via wages paid to local workers. The majority of the money will be spent on purchasing equipment abroad to grow the capital stock, i.e., the capacity to produce in the strategic sectors of the economy and ensure long-term, sustained growth after external developmental funds cease flowing into the economy.
Before sector-specific investments are made, the strategic allocation of funds must recognize that much of the existing industrial base, especially in heavy industry, may no longer be viable in a post-peace treaty scenario. If North Korea is expected to refrain from competing with South Korea in heavy manufacturing, it would be prudent to downscale these sectors and focus instead on light industry, services, and exportable consumer goods. Capital should be directed not toward reviving outdated plants, but toward building productive capacity in sectors with comparative advantages, like textiles, food processing, and basic electronics, through SEZ-based joint ventures. The primary investments must be made in the following sectors:
a. Infrastructure
The DPRK’s infrastructure is severely deficient and will require substantial investment, estimated at approximately $90 billion based on historical patterns from South Korea, China, and Vietnam, to support high economic growth through modernization across six priority areas.
2. Paved roads
The DPRK has approximately 724 kilometers of paved roads, which equates to less than 1% of the total length of paved roads in South Korea, and these roads are in severe need of repairs to ensure the flow of goods and merchandise.
2. Electric output capacity
The DPRK’s total electric output capacity amounts to 13 billion kilowatt hours (kWh), one-fortieth (1/40) of South Korea’s. This is desperately short of the output required for rapid development, meaning that large investments are required to replace existing generators and increase capacity. Only through this investment can the DPRK avoid frequent blackouts.
3. Rail
There are roughly 6000 kilometers of railroad in the DPRK. This is an area in which the DPRK exceeds South Korea (3668 km), but these railroads are now in a poor state due to a lack of investment in improvements and maintenance. $20 billion would support a phased approach to rehabilitate key freight and passenger rail routes, though full modernization of the entire network is estimated to require $50–70 billion.
4. Ports
The DPRK has 17 ports, with the main ports being Sonbong, Hungnam, Nampo, Songlim, Seongbong, Wosan, and Haeju. The port facilities of the DPRK are in poor condition and have limited logistical processing capacity. Without substantial investment, the DPRK’s port facilities will not be able to sufficiently support the influx of imports that are required to develop the nation.
5. Aviation infrastructure
There are approximately 78 usable airfields in the DPRK. Investment will be required to modernize terminals, control towers, and hangars, whilst also repairing or replacing deteriorated runways and access roads.
6. Communications infrastructure
The existing communications infrastructure must be repaired and expanded to allow for nationwide connection and development. Investment in the construction of new infrastructure plays a critical political and economic role and must be undertaken immediately as a prerequisite to modernization, as projects such as road or port building can take upwards of 3-5 years to complete.
b. Agricultural revitalization
Addressing North Korea’s chronic food insecurity is not only a humanitarian imperative but also a strategic economic necessity. Widespread malnutrition suppresses labor productivity, limiting growth potential across all sectors.
Approximately 4.75 million North Koreans, 23.4% of the labor force, are employed in agriculture, yet productivity remains at just 60–70% of South Korean levels, well below international standards. In 2022, the DPRK produced only 4.51 million tons of grain, far short of the 5.95 million tons required to feed its population, according to estimates from the UN Food and Agriculture Organization and South Korea’s Rural Development Administration. Factoring in feed grain needs and production of other staples, the actual demand is even higher, underscoring the structural deficit in food supply.
To close this gap and unlock broader economic potential, agriculture must be prioritized with a dedicated 17% share of the $300 billion fund, approximately $50 billion. Key investments should target mechanization, fertilizers, pest control, irrigation expansion, and conversion of arid or underutilized land into arable farmland. Improved agricultural productivity will not only feed the population but also free up labor for more productive roles in industry and services, facilitating sectoral reallocation.
Agricultural reform must also include ownership diversification and institutional support for rural cooperatives, enabling efficiency gains and market responsiveness. Without such investment and reform, North Korea would remain dependent on costly food imports, undermining both fiscal stability and political legitimacy. In sum, revitalizing agriculture is the necessary first step toward achieving the dual objectives of rapid growth and structural transformation within a decade. If these outcomes are not realized within this timeframe, the credibility of the broader development strategy – and its political feasibility – would be in jeopardy.
c. Human capital development
Ultimately, the modernization of the nation’s economy is not achieved by natural resources or a corporate organization; it is achieved by people. China and Kazakhstan have both demonstrated that competent individuals who have received excellent training and education from Western-style universities not only play an important role during the process of economic reform and opening, but they also serve as the driving force that enables a nation to achieve remarkable economic development.
Fostering and producing competent individuals who can operate and manage newly founded private enterprises, establish reasonable economic policies, and efficiently execute national-level tasks will be essential in modernizing the DPRK’s economy. The faster the DPRK is able to start producing individuals who have been superbly trained and educated at Western-style universities, the faster it will achieve economic modernization. Accordingly, $30 billion should be allocated to human capital development over the next ten years to support this transformation.
The following three proposals should be considered in order to support this objective:
- A minimum of 10,000 qualified and talented individuals should be sent overseas to study abroad at Western universities. This will require an annual budget of approximately $400 million, which should be borne by the state.
- A Western-style university should be founded within the DPRK, thus allowing experts to be trained domestically, as well. As Kazakhstan’s experience has shown, establishing a Western-style university to foster young talent is drastically cheaper than sending students overseas for higher education, and can produce comparable results.
- Seminars and symposiums should be hosted to invite foreign experts to share their knowledge on modern management and the latest technology, and joint venture companies should work to share managerial know-how and technology through field training.
Public works programs serving the purpose of absorbing workers or military personnel released from their jobs could contribute to agriculture, rural construction, and infrastructure support projects. Program spending of about $6bn per year on average could potentially employ several million workers and is likely to have a strong multiplier effect, which boosts the development of a consumption-oriented industry.
This labor-intensive strategy complements long-term investments in education and institutional development, supporting the dual objective of achieving rapid economic growth and preserving regime stability. Moreover, by delivering substantial GDP gains through relatively low-cost domestic mobilization, this high-multiplier approach increases the overall efficiency of the development strategy. It enables the DPRK to reduce reliance on capital-intensive imports and reallocate resources toward sectors with strong domestic spillover effects, all while staying within the original $300 billion funding envelope.
d. Institutional modernization and financial infrastructure
To support the DPRK’s economic transformation and growth, approximately $40 billion should be allocated to institutional modernization and financial infrastructure, including the development of a robust regulatory environment, commercial banking system, and transparent governance institutions, key components that will help channel development funds efficiently, minimize corruption, and strengthen investor confidence.
e. Industrial upgrading and foreign reserve stabilization
To stabilize its currency, facilitate international trade, and build long-term economic resilience, the DPRK must prioritize rebuilding its foreign exchange reserves alongside industrial upgrading, an effort that warrants a $40 billion investment. This funding should support technology transfer, the establishment of innovation hubs, the development of competitive export sectors such as textiles, agriculture, and light manufacturing, and the promotion of joint ventures with partners from South Korea, Japan, and China.
To achieve this, foreign investors must be offered avenues to enter through SEZs, where risks are managed and political insulation is preserved. These zones will be attractive to investors not only because of tax and regulatory incentives, but also because of North Korea’s cheap labor pool. As these SEZs scale up, they can serve as a platform for managerial training, export innovation, and eventually spillover into the broader economy.
While initial reserves may come from donor aid and foreign investment, sustainable replenishment will require enhanced export competitiveness and the strategic use of mineral resources, carefully avoiding over-reliance on any single sector.
The injection of $300 billion, supported by a conservative multiplier effect, could catalyze economic activity and provide a strong foundation for growth. However, overcoming structural constraints such as limited absorption capacity, underdeveloped institutions, and human capital deficits is essential to sustain momentum. Institutional development, particularly in commercial banking and economic governance, will be vital for efficient resource allocation and fostering long-term growth. Simultaneously, replenishing foreign exchange reserves through export promotion and prudent resource management will stabilize the economy and build resilience. By learning from China’s experience and implementing market-oriented reforms, the DPRK has the potential to transition from an isolated, stagnant economy to one that is more integrated and dynamic, able to lift millions out of poverty.
[1]Kim, Byung-Yeon. 2017. Unveiling the North Korean Economy: Collapse and Transition. Cambridge: Cambridge University Press. p. 65.
