ABSTRACT
Chapter 2 examines the relationship between economic transformation and economic integration, which is often discussed for the development of a transition country like North Korea. We first look at the experiences of European transition countries. When CEE countries attempted to join the EU after the collapse of socialist systems in the early 1990s, the debate on whether economic integration or economic transformation should come first was intense in those countries. One group argued that the formerly socialist countries should be allowed to join the EU before they had completed the transformation from socialism to democracy, while the other argued that they needed to complete the transition first. Also, when East Germany collapsed, there was another hot debate on whether to follow the big bang approach or the gradual approach. Proponents of the big bang approach were more inclined to immediate unification and preferred that economic integration of East and West Germany precede the economic transformation of East Germany, while proponents of the gradual approach advocated for East Germany to complete its economic transformation before the two countries could be unified. Considering the lessons from these experiences in Europe and also the situation of North Korea, we derive the first principle that economic opening and integration should precede economic reforms and transformation.
