North Korea's economy, which remains under tight state control (collectivized agriculture and state-owned companies account for about 90 percent of all economic activity) grew by 2.2 percent in 2004, according to estimates by South Korea's central bank. Increases in output from utilities, agriculture, and mining contributed to this growth. The modest growth in real Gross Domestic Product (GDP) over the last seven years followed a steady economic contraction from 1990 through 1998. North Korea's communist ideology has been based on the concept of "juche," or self-reliance. Severe economic problems have, however, forced the country to accept international food aid and embark on a series of limited market reforms. Famine in North Korea has reportedly killed hundreds of thousands of people over the last decade. Several governments, including the United States, have provided funding to the United Nations' World Food Program (WFP) for emergency food aid to North Korea.

North Korea has permitted a small amount of foreign investment in recent years, mainly by South Korean firms. According to South Korean figures, South Korea surpassed China in 2002 as North Korea's largest trading partner.

In mid-June 2000, the leaders of the two Koreas held their first summit meeting in Pyongyang. The summit led to a joint statement by the two leaders which supported, in general terms, the goal of eventual reunification of the two Korean states, reunification of families divided since the Korean War, and economic cooperation. Developments in inter-Korean relations since 2002 have been mixed. A naval clash near the two countries maritime frontier in June 2002 heightened tensions, but progress has been made in some areas, such as the commencement of work in September 2002 on clearing parts of the Demilitarized Zone (DMZ) to facilitate possible road and rail links. South Korean president, Roh Moo-Hyun has continued a policy of engagement with the North.

The United States announced on June 19, 2000 that it was easing some of the economic sanctions which have been in place with North Korea under the Trading With the Enemy Act since the start of the Korean War in 1950. Licenses are still required from the Treasury Department's Office of Foreign Assets Control (OFAC) for many transactions, and sales of military and "dual-use" items are still restricted. (See the OFAC Fact Sheet on North Korea Sanctions for more information.) The designation of North Korea as a state supporter of terrorism by the United States also effectively precludes lending by international financial institutions such as the World Bank.