Technology adoption and late industrialization

Choi, Jaedo and Shim, Younghun (2022): Technology adoption and late industrialization.

Abstract

We study how the adoption of foreign technology and local spillovers from such adoption contributed to late industrialization in a developing country during the postwar period. Using novel historical firm-level data for South Korea, we provide three empirical findings: direct productivity gains to adopters, local productivity spillovers of the adoption, and complementarity in firms' adoption decisions. Based on these findings, we develop a dynamic spatial model with firms' technology adoption decisions and local spillovers. The spillovers induce dynamic complementarity in firms' technology adoption decisions. Because of this complementarity, the model potentially features multiple steady states. Temporary adoption subsidies can have permanent effects by moving an economy to a new transition path that converges to a higher-productivity steady state. We calibrate our model to the microdata and econometric estimates. We evaluate the effects of the South Korean government policy that temporarily provided adoption subsidies to heavy manufacturing firms in the 1970s. Had no adoption subsidies been provided, South Korea would have converged to a less industrialized steady state in which the heavy manufacturing sector’s share of GDP would have been 15 percentage points lower and aggregate welfare would have been 10% lower compared to the steady state with successful industrialization. Thus, temporary subsidies for technology adoption had permanent effects.

• Item Type: MPRA Paper
• Language: English
• Keywords: technology adoption; industrialization; knowledge spillover; path dependence; big push
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity

References

Choi, Jaedo and Andrei A. Levchenko, The Long-Term Effects of Industrial Policy, NBER Working Paper w29263, 2021.