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International Isolation and Regional Inequality: Evidence from Sanctions on North Korea

Oct 2016
Working Paper
Yong Suk Lee
This paper examines how regional inequality evolves when a country becomes increasingly isolated from economic sanctions. I hypothesize three channels: regional favoritism by the ruling elites, reallocation of commerce that reflects the change in relative trade costs, and import substitution. Using nighttime lights from North Korea, I find that the capital city, trade hubs near China, and manufacturing cities become relatively brighter when sanctions increase. However, production shifts away from capital-intensive goods, deterring industrial development. The results imply that despite the intention to target the ruling elites, sanctions increase regional inequality at a cost to the already marginalized hinterlands
Publication Keywords: 
Economic Sanctions
Regional Inequality
Elite Capture
Economic Geography
Import Substitution
North Korea
Geographic Regions: 
East Asia