North Korea inherited the basic infrastructure of a modern economy because of Japan's substantial investment in development during the Japanese occupation. The Japanese had developed considerable heavy industry, particularly in the metal and chemical industries, hydroelectric power, and mining in the northern half of Korea, where they introduced modern mining methods. The southern half of the country produced most of the rice and a majority of textiles. The hydroelectric power and chemical plants were said to be second to none in Asia at that time in terms of both their scale and technology. The same applied to the railroad and communication networks.
There were, however, serious defects in the industrial structures and their location. The Korean economy, geared primarily to benefit the Japanese homeland, was made dependent on Japan for final processing of products; heavy industry was limited to the production of mainly raw materials, semifinished goods, and war supplies, which were then shipped to Japan proper for final processing and consumption. Japan did not allow Korea to develop a machine tool industry. Most industrial centers were strategically located on the eastern or western coasts near ports so as to connect them efficiently with Japan. Railroad networks ran mainly along the north-south axis, facilitating Japan's access to the Asian mainland. Because the Japanese occupied almost all the key government positions and owned and controlled the industrial and financial enterprises, few Koreans benefited from acquiring basic skills essential for modernization. Moreover, the Japanese left behind an agrarian structure--land tenure system, size of landholdings and farm operation, pattern of land use and farm income--that needed much reform. Farms were fragmented and small, and landownership was extremely unequal. Toward the end of the Japanese occupation, about 50 percent of all farm households in Korea were headed by tenant farmers.
The sudden withdrawal of the Japanese and the subsequent partition of the country created economic chaos. Severance of the complementary "agricultural" south from the "industrial" north and from Japan meant that North Korea's traditional markets for raw materials and semifinished goods--as well as its sources of food and manufactured goods--were cut off. Furthermore, the withdrawal of the entrepreneurial and engineering skills supplied mainly by Japanese personnel affected the economic base. Thus the task facing the communist regime in North Korea was to develop a viable economy, which it reoriented mainly toward other communist countries, while at the same time to rectify the "malformation" in the colonial industrial structure. Subsequently, the problem was compounded further by the devastation of industrial plants during the Korean War (1950-53) (see The Legacy of Japanese Colonialism , ch. 1). North Korea's economic development therefore did not tread a new path until after the Korean War.
Data as of June 1993