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)

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: industrial policy; tariffs; licensing; public-private joint R&D; entry control; infant industry; leapfrogging,
• Subjects: L - Industrial Organization > L5 - Regulation and Industrial Policy; L - Industrial Organization > L5 - Regulation and Industrial Policy > L52 - Industrial Policy ; Sectoral Planning Methods; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy

References

Aghion, Philippe, Mathias Dewatripont, Liqun Du, Ann Harrison, and Patrick Legros. 2011. Industrial Policy and Competition. CEPR Discussion Papers 8619.

Akamatsu, K. 1962. The Historical Patterns of Economic Growth in Developing Countries. Developing Economies 1 (s1): 3-25.

Anderson, Philip, and Michael Tushman. 1990. Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change. Administrative Science Quarterly 35, 604-633.

Beason, Richard, and David E. Weinstein. 1996. Growth, Economies of Scale, and Targeting in Japan (1955-1990). The Review of Economics and Statistics 78(2), 286-295.

Bell, M. and Pavitt, K. 1993. Technological Accumulation and Industrial Growth: Contrasts Between Developed and Developing Countries. Industrial and Corporate Change, 2, 1, 157-210.

Borensztein, E., J. De Gregorio and J. W. Lee. 1998. How does foreign investment affect growth? Journal of International Economics: v45(1, Jun), 115-135.

Byun, Hyung-Yoon and Dong Chul Park. 1989. Development of Capitalism in Korea: Formation and Development of Monopolistic Capital, in Korean Economy. Hyung-Yoon Byun ed. Seoul: Yupoong Publishing Company (in Korean).

Chandra, V. (ed.). 2006. Technology, Adaptation and Exports: how some countries got it right. The World Bank, Washington, DC.

Chung, Moon Young, & Lee, K. 2015. How Absorptive Capacity is Formed in a Latecomer Economy: Different Roles of Foreign Patent and Know-how Licensing in Korea. World Development, 66, 678–694. doi:10.1016/j.worlddev.2014.09.010

Cohen, Wesley M., and Daniel A. Levinthal. 1990. Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Science Quarterly 35(1), 128-152.

Cohen, Wesley M. and Daniel A. Levinthal. 1989. Innovation and Learning: The Two Faces of R&D. The Economic Journal, 99:397, pp. 569-96.

Enos, John L., and Woo Hee Park. 1988. The Adoption and diffusion of imported technology: the case of Korea. New York Croom Helm.

Evenson, R. E., and Larry Westphal. 1995. Technological Change and Technology Strategy in Jere Behrman and T. N. Srinivasan (eds.), Handbook of Development Economics, Vol. 3, Amsterdam: North-Holland.

Flatten, T., Engelen, A., Zahra, S. and Brettel, M. 2011. A measure of absorptive capacity: Scale development and validation. European Management Journal 29(2): 98–116.

Freeman, C. and L. Soete. 1997. Development and the diffusion of technology in Freeman, C. and L. Soete (eds.), The Economics of Industrial Innovation, Pinter Publishers, London.

Johnson, Chalmers. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy 1925–1975. Palo Alto, CA: Stanford University Press.

Joo, S.H., and K. Lee. 2010. Samsung's catch-up with Sony: an analysis using US patent data. Journal of the Asia Pacific Economy 15(3), 271–287.

Jung, Moosup and Keun Lee. 2010. Sectoral systems of innovation and productivity catch-up: determinants of the productivity gap between Korean and Japanese firms. Industrial and Corporate Change 19(4), 1037–1069.

Keller, W. 1996. Absorptive capacity: On the creation and acquisition of technology in development. Journal of Development Economics, 49(1). 199–227. doi:10.1016/0304-3878(95)00060-7.

Kim, Linsu. 1998. Crisis construction and organisational learning: capability building in catching-up at Hyundai Motor. Organization science, 9 (4):506-.521.

Kim, Linsu. 1997. Imitation to innovation: the dynamics of Korea's technological learning. Boston: Harvard Business School Press.

Kojima, K. 1973. A macroeconomic approach to foreign direct investment. Hitotsubashi Journal of Economics 14: 1-21.

Korea Development Bank. 1991. Analysis of Effects of Technology Acquisition. Seoul: Korea Development Bank (in Korean).

Korea Industrial Technology Association. 1995. Records of Technology Acquisition Contracts: 1962-1995. Seoul (in Korean): Korea Industrial Technology Association.

Kiyota, Kozo and Tetsuji Okazaki. 2005. Foreign technology acquisition policy and firm performance in Japan. 1957-1970: Micro-aspects of industrial policy. International Journal of Industrial Organization, 23:7-8, pp. 563-86.

Lane, Peter J., Balaji R. Koka, and Seemantini Pathak. 2006. The Reification of Absorptive Capacity: A Critical Review and Rejuvenation of The Construct. Academy of Management Review, 31, pp. 833-63.

Laursen, Keld and Valentia Meliciani. 2002. The relative importance of international vis‐à‐vis national technological spillovers for market share dynamics. Industrial and Corporate Change, 11:4, pp. 875-894.

Lee, Jaymin. 1996. Technology imports and R&D efforts of Korean manufacturing firms. Journal of Development Economics, 50:1, pp. 197-210.

Lee, Jong-wha. 1996. Government Interventions and Productivity Growth. Journal of Economic Growth 1, 391-414.

Lee, Keun. 2019. The Art of Economic Catch-up. Cambridge Univ. Press.

Lee, Keun, 2017, “Smart Specialization With Short-Cycle Technologies and Implementation Strategies to Avoid Both Target and Design Failures." In Radosevic, et al. (2017).

Lee, Keun. 2013a. Schumpeterian Analysis of Economic Catch-up: Knowledge, Path-creation and the Middle Income trap. Cambridge Univ. Press.

Lee, Keun. 2013b. How Can Korea be a Role Model for Catch-up Development? A ‘Capability-based View’, in Augustin K. Fosu (ed.) Achieving Development Success: Strategies and Lessons from the Developing World, Oxford: Oxford Univ. Press.

Lee, Keun. 2013c. Capability Failure and Industrial Policy to Move Beyond the Middle-Income Trap: From Trade-Based to Technology-Based Specialization, in Stiglitz, J. E. and J. L. Yifu (Eds), The Industrial Policy Revolution I, pp. 244-272. Basingstoke, UK: Palgrave Macmillan.

Lee, Keun. 2006. The Washington Consensus and East Asian Sequencing: Understanding Reform in East and South Asia, in J. Fanelli and G. McMahon (eds.), Understanding Market Reforms, Vol. 2, Palgrav.

Lee, K. and B-Y Kim. 2009. Both institutions and Policies matter but differently at different income groups of countries: determinants of long run economic growth revisited. World Development 37(3), 533-549.

Lee, K., and F. Malerba. 2018. Economic Catch-up as Evolutionary Process, in Nelson, R. R. (Eds), Modern Evolutionary Economics: An Overview. Cambridge: Cambridge University Press.

Lee, K. and J. Mathews. 2012. Firms in Korea and Taiwan: Upgrading in the same industry and entries into new industries, in The Innovative firms in the Emerging Market Economies, edited by J. Cantwell and Ed Amann, Oxford Univ. Press. 2012.

Lee, K. and J. Mathews. 2010. From the Washington Consensus to the BeST Consensus for World Development. Asian-Pacific Economic Literature 24(1), 86-103.

Lee, K. and Y. K. Kim. 2010. IPR and Technological Catch-Up in Korea. edited by H. Odagiri, A. Goto, A. Sunami, R. Nelson, Intellectual Property Rights, Development, and Catch Up: An International Comparative Study, Oxford University Press.

Lee, K., C. Lim and W. Song. 2005. Emerging Digital Technology as a Window of Opportunity and Technological Leapfrogging: Catch-up in Digital TV by the Korean Firms. International Journal of Technology Management 29(1-2), 40-63.

Lee, K., S. Mani and Q. Mu. 2012. Divergent Stories of Catchup in Telecom: China, India, Brazil, & Korea. a book chapter in, F, Malerba and R. Nelson (eds.), Economic Development as a Learning Process. Edward Elgar.

Mathews, John A. 2002. The Origins and Dynamics of Taiwan’s R&D Consortia. Research Policy 31, 633-651.

Mowery, D. C., & J. E. Oxley. 1995. Inward technology transfer and competitiveness: The role of national innovation systems. Cambridge Journal of Economics. 19: 67-93.

Ocampo, J.A. (ed.). 2005. Beyond Reforms: structural dynamics and macroeconomic stability. Stanford University Press for the UN Economic Commission for Latin America (ECLAC), Washington, DC.

OECD. 1996. Reviews of National Science and Technology Policy: Republic of Korea. Paris: OECD.

Pack, Howard. 1992. Learning and productivity change in developing countries. Helleiner, GK Trade Policy, Industrialization, and Development: New Perspectives. Clarendon Press, Oxford.

Park, Kyoo-Ho and Keun Lee. 2006. Linking the Technological Regime to the Technological Catch-Up: Analyzing Korea and Taiwan Using the US Patent Data. Industrial and Corporate Change, 15 (4): 715-53.

Perez, C., and L. Soete. 1988. Catching-up in technology: entry barriers and windows of opportunity. in Dosi et al. (ed.), Technical Change and Economic Theory, Pinter Publishers. London.

Radosevic, Slavo, Adrian Curaj, Radu Gheorghiu, Liviu Andreescu, Imogen Wade, eds. 2017. Theory and Practice of Smart Specialization. Elsevier 2017

Shin, Hochul, and Keun Lee. 2012. Asymmetric Trade Protection Leading not to Productivity but to Export Share Change: The Korean Case from 1967 to 1993. Economics of Transition.

Song, Sungsoo. 2002. Historical Development of Technological Capabilities in Korean Steel Industry: Posco from the 1960s to the 1990s (in Korean). Ph. D. Thesis, Seoul: Seoul National University.

Stiglitz, J. E. and J. Yifu Lin (Eds), The Industrial Policy Revolution I. Basingstoke, UK: Palgrave Macmillan.

Swart, Gerhard (2015). “Innovation Lessons Learned from the JOULE EV Development,” The IAMOT 2015 Conference Proceedings.

Tushman, Michael, and Philip Anderson. 1986. Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31, 439-465.

Westphal, Larry E., Linsu Kim, and Carl J. Dahlman. 1985. Reflections on the Republic of Korea's Acquisition of Technological Capability, in International Technology Transfer: Concepts, Measures, and Comparisons. Nathan Rosenberg and Claudio Frischtak eds. New York: Praeger, pp. 167-221.

World Bank. 2010. Exploring the Middle-Income-Trap. World Bank East Asia Pacific Economic Update: Robust Recovery, Rising Risks. Vol. 2, Washington, DC: World Bank.

World Bank. 2005. Economic Growth in the 1990s: Learning from a Decade of Reform. Washington, DC: World Bank.

Yusuf, S. and Nabeshima, K. 2009. Can Malaysia Escape Middle Income Trap? A Strategy for Penang. World Bank Policy Research Working paper 4971.

Zahra, S. and G. George. 2002. Absorptive capacity: A review, reconceptualization, and extension. Academy of Management Review 27(2): 185–203.