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Diverse Tools of Industrial Policy in Korea: A Schumpterian and Capability-based View

Lee, Keun (2020): Diverse Tools of Industrial Policy in Korea: A Schumpterian and Capability-based View. Published in: Oxford Handbook of Industrial policy (2020)

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Abstract

The current chapter presents a Schumpeterian and capability-based view of industrial policy, reflecting upon its practices in Korea over the last several decades. Given that it is typical for many developing countries to suffer from capability failure, industrial policy should go beyond correcting market failure but aim at overcoming capability failure. In this sense, it is not picking winners but picking good students and allow them a time for learning and building capabilities until they became able to compete with incumbent firms from developed countries. Specifically, this chapter discusses the following tools of industrial policy which has been practiced in Korea at different stages of development: first, tariff to protect infant industry; second, technology import by licensing to promote building of absorptive capacity; third, entry control which guaranteed rents to be paid for fixed and R&D investment; and fourth, public-private joint R&D to break into higher-end products and sectors. While these tools look different in their concrete contents, they share the important commonality of allowing some rents for the targeted sectors or firms so that such rents (extra profits) may be used to pay for building variants of capabilities, such as production capabilities in the case of tariffs or technology licensing in the 1970s, investment capabilities in entry control in the 1980s, and technological (R&D) capabilities in the case of public-private joint R&D in the 1990s.

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