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

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 Koreas export pattern in size and trade type dilutes the effectiveness of the unilateral sanctions imposed by South Korea in particular. South Koreas economic sanctions significantly boost North Koreas 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 Koreas sanctions.