This dissertation focused on the operating mechanism about market and price system by using the Multiple Regression Analysis during the period of economy reform in North Korea.
North Korean government have insists that the four factors effect the market price of rice; the prime cost, demand and supply, the international market price and exchange rate. However, the previous literature did not explain that which independent variable is significant as to decide the rice price in market.
In this research, the dependent variable is the rice-price in the North Korea market, and four independent variables are the export price of short grain from United States, the export price of long grain (100% grade B) from Thailand, the domestic wholesale price of long grain from China and market exchange rate of North Korea’s won against U. S. dollar. I collected the prices and exchange rate information between July 2002 and July 2009 that as North Korea implement an economy reform policy in 2002.
As a result of the multiple regression analysis, the significant independent variable is the export price of long grain from Thailand so called international rice price. North Korea’s market rice price fluctuated and coupled with the international grain price, even the pattern is similar with each other in 2007 off and on.
This result could be explain that firstly, North Korean government have adjusted market rice price that they considered the demand and supply in the market, international price and exchange rate since allowed the market officially. They made full use of five kinds of policies; impose a ceiling price on rice, a forced saving and financial control to adjust the amount of currency in circulation, to open the state-operated wholesale shop [domaeban] in the market and the government’s purchasing policy about the grain to strengthen the national distribution system. Moreover, these four policies failed they directly crackdown on the market.
Secondly, North Korean’s market linked with global marketplace. This market is that the commodity is distributed and the price information share with international market. North Korea’s market changed from the closed domestic distributed place to economy place as to share the international business information. Therefore, international grain price information directly affected the North Korean’s grain price, especially the rice price in market. The signal of international grain price sent a message to the North Korean’s market through the market mechanism. Eventually, the North Korea’s market price adjusted official direction by government and the price information by participant of business. However, these policies cannot solve the fundamental economic problems before the increasing of commodity supply in the market.
To sum up, North Korea’s government can make the price stabilization in the market until limit leverage before currency reform in 2009. However, these adjustment programs cannot solve the fundamental problems and it could cause the insecure system and made the black market in North Korea.
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