Khan, Haider (2008): Building an Innovative Economy through Managed Creative Destruction: A Theory with Applications to South Korea.
Preview |
PDF
MPRA_paper_7713.pdf Download (120kB) | Preview |
Abstract
This paper presents a somewhat novel theory of innovation in the economy wide setting. The starting point for this theory is the creative destruction process at the firm and industry level. However, an extension to an economy wide setting requires the explicit theorization of the role of the state as well as an interacting nonlinear market process. The direction in which the theory leads is a complex interaction between state policies and market processes that influence the decisions taken by specific firms in particular areas of innovative activities. The key concept that is developed in this context can be called a Managed Creative Destruction(MCD) process. In a national (or regional) MCD, the creative destruction process characterizing innovation is structured more consciously by the state (or the states in a particular region). It can be argued that China is now going through this process. In this paper the particular case studied is South Korea's recent historical experience. Following Schumpeter we assume that innovation in specific firms can have economy-wide effects. Models based on this idea can be shown to have multiple equilibria. The idea of a positive feedback loop innovation system or POLIS is formalized by picking an appropriate sequence of equilibria over time. It is shown that POLIS has empirical relevance by applying the formal model to an actual economy. Recent financial crisis in many Asian countries, most notably South Korea, seems to have reversed the conventional wisdom regarding the East Asian “miracle”. This paper applies the concept of a POLIS to show that neither the current view that the miracle was a mirage nor the earlier contrarian view that the growth was a result of factor accumulation only is correct. Ultimately technological transformation — in particular the creation of a positive feedback loop innovation system is what makes the difference between sustained growth and gradual or sudden decline. Although various problems remain in both the real and the financial sectors, it will be premature to dismiss the impressive achievements and the future possibilities of the South Korean economy
Item Type: | MPRA Paper |
---|---|
Original Title: | Building an Innovative Economy through Managed Creative Destruction: A Theory with Applications to South Korea |
Language: | English |
Keywords: | technological transformation, multiple equilibria, POLIS (positive feedback loop innovation system), Korea,South Korean POLIS, Managed Creative Destruction(MCD) |
Subjects: | O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models 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 > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives |
Item ID: | 7713 |
Depositing User: | Haider Khan |
Date Deposited: | 12 Mar 2008 16:19 |
Last Modified: | 30 Sep 2019 09:42 |
References: | Abramovitz, Moses (1989), Thinking About Growth. Cambridge: Cambridge University Press. Adelman, Irma and Robinson, Sherman (1978), Income Distribution Policy in Developing Countries: A Case Study of Korea, Stanford: Stanford University Press. ----- (1979), “The General Equilibrium Solution for the Korean Model,” The World Bank (mimeo). Aghion, P. and P. Howitt (1992) “A Model of Growth Through Creative Destruction”, Econometrica, Vol. 60, No. 2, March: 323-351. Amann, H. (1976), Fixed Point Equations and Nonlinear Eigenvalue Problems in Ordered Banach Spaces’, SIAM Review, Vol. 18, No. 4 October, 620-709. Amsden, Alice (1989), Asia's Next Giant: South Korea and the Late Industrialization, New York: Oxford University Press. Arthur, W. Brian (1994), Increasing Returns and Path Dependence in the Economy, Ann Arbor, MI: University of Michigan Press, 1994. Boskin, M. J. and L. J. Lau (1990), “Post-War Economic Growth of the Group-of-Five Countries: A New Analysis.” Centre for Economic Policy Research Technical Paper No. 217. Stanford Univerity Press. ----- (1991), "Capital Formation and Economic Growth." In Technology and Economics: A Volume Commemorating Ralph Landan’s Service to the National Academy of Engineering, pp. 47 - 5 6. Washington, D.C.: National Academy Press. ----- (1994), “The Contributions of R&D to Economic Growth: Some Issues and Observations.” Paper presented at the Joint American Enterprise Institute--Brookings Institution Conference on the Contribution of Research to the Economy and Society. Washington, D.C. Chang, Ha-Joon (1994), The Political Economy of Industrial Policy, London: Macmillan. Enos, J. K. and W. H. Park (1988), The Adoption and Diffusion of Imported Technology: The Case of Korea. London: Croon Helm with Methuen, Inc. Felipe, J. (1997) “Total Factor Productivity Growth in East Asia: A critical Survey” EDRC Report No. 65, ADB, Manila, Philippines. Grossman, G. M. and E. Helpman (1991), “Quality Ladders the Theory of Growth”, Review of Economic Studies, 58, 43-61. Hobday, Michael (1995), Innovation in East Asia: The Challenge to Japan. Aldershot, England: Edward Elgar Publishing Ltd.. James, Jeffrey and Khan, Haider (1997), Technological Systems, and Development, London: MacMillan. Jones, Leroy P., and Il Sakong (1986), Government, Business and Entrepreneurship in Economic Development: The Korean Case. Cambridge, MA: Harvard University Press. Khan, Haider A. (1985) “Choice of Technology in Energy and Textiles Sectors in South Korea,” in A.S. Bhalla ed. Technology and Employment in Industry, 3rd Edition, in Geneva ILO. ----- (1993), Faust I or Faust II? Some Observations on U.S.-Japan Trade Conflicts and Implications for Trade and Technology in Asian NICs,” paper presented at the conference on Japan as Techno-economic Superpower, Santa Fe, New Mexico. ----- (1997a), Technology, Energy and Development: The South Korean Transition, Cheltenham, U.K.: Edward Elgar. ----- (1997b), “GIN and TONIC: Technology in Globally Integrated Networks for NICs,” unpublished, manuscript. ----- (1997c) The Future of Miracles: Interpreting East Asian Growth” Economics and Development Resource Center, Asian Development Bank, Manuscript. ----- (1998), Technology, Development and Democracy:: Limits to National Innovation Systems in the Age of Postmodernism, Cheltenham, U.K.: Edward Elgar. ----- (1998) A Quick Note on Financial Crisis, Economics and Development Resource Center, Asian Development Bank, Manuscript. -------(2004) Innovation and Growth in East Asia, London: Palgrave -------(2002) "Innovation and Growth in a Schumpeterian Model", Oxford Development Studies30(3), pp.289-306. Khan, H. A., and Thorbecke, E. (1988), Macroeconomic Effects and Diffusion of Alternative Technologies within a Social Accounting Matrix Framework, Aldershot, U.K.: Gower Publishing. ----- (1989), “Macroeconomic Effects of Technology Choice: Multiplier and Structural Path Analysis,” Journal of Policy Modeling 11, no. 1: 131-59. Kim, J.I., and L. J. Lau (1992a), "Human Capital and Aggregate Productivity: Some Empirical Evidence from the Group-of-Five Countries." Stanford University Department of Economics working paper. Sept. ----- (1992b), "The Importance of Embodied Technical Progress: Some Empirical Evidence from the Group-of-Five Countries." Center for Economic Policy Research Working Paper No. 296. Stanford University, June. ----- (1992c), "The Sources of Economic Growth of the Newly Industrialized Countries on the Pacific Rim." Paper presented at the Conference on the Economic Development of the Republic of China and the Pacific Rim in the I99Os and Beyond. Taipei, May 25-28. ----- (1994a), "The Role of Human Capital in the Economic Growth of the East Asian Newly Industrialized Countries." Paper presented at the Asia-Pacific Economic Modeling Conference-94. Sydney, Aug. 24 - 26. ----- (1994b), "The Sources of Asian-Pacific Economic Growth." Paper presented at the Annual Meeting of the Canadian Economic Association. Calgary, June. ----- (1994c), "The Sources of East Asian Economic Growth Revisited." Stanford University Department of Economics working paper. ----- (1994d), "The Sources of Economic Growth in the East Asian Newly Industrialized Countries." Journal of the Japanese and International Economies, 8, 35-71. ----- (1995), "The Role of Capital in the Economic Growth of the East Asian Newly Industrialized Countries." In B. Kapur, E. Quah, and H. H. Teck, eds., Festschrift in Honour of Professor Lim Chong Yah. Kim, Linsu (1980), "Stages of Development of Industrial Technology in a Developing Country: A Model " Research Policy 9: 254-277. ----- (1989), "Korea's National System for Industrial Innovation." Paper prepared for the National Technical System Conference at the University of Limburg in Maastricht, the Netherlands, November 3-4. Krugman Paul (1996a), The Self-Organizing Economy, Oxford: Blackwell Publications. ----- (1996b), Pop Internationalism, Cambridge: The MIT Press. Lau, Lawrence J. (1996), “The Sources of Long-Term Economic Growth: Observations from the Experience of Developed and Developing Countries.” Ralph Landeu, Timothy Taylor and Gavin Wright (eds.) Stanford, Ca.: Stanford Univ. Press. Lau, L. J., and P. A. Yotopoulos (1989), "The Meta-Production Function Approach to Technological Change in WoHd Agriculture." Journal of Development Economics, 241-69. Lee, Keun, Byung-Kook Kim, Chung H. Lee and Jaeyeol Yee, 2005. "Visible success and invisible failure in post-crisis reform in the Republic of Korea : interplay of the global standards, agents, and local specificity," Policy Research Working Paper Series 3651, The World Bank, revised (downloaded from http://ideas.repec.org/e/ple6.html ,last visited March 12,2008) Lucas, R. E. Jr. (1988), “On the Mechanics of Economic Development”, Journal of Monetary Economics, 22, 3-42. Marx, Karl (1945), Capital Vol. 1, London: Alllen and Unwin (German edition first published in 1867). Matsuyama, K. (1991), “Increasing Returns, Industrialization and Indeterminancy of Equilibrium”, Quarterly Journal of Economics, 106:616-650. Nelson, Richard R. (1964), "Aggregate Production Functions and Medium-range Growth Projections," American Economic Review, September, 54, 575-606. ----- (1968), “A Diffusion Model of International Productivity Differences in Manufacturing Industry,” American Economic Review, 58:1219-48. ----- (1980), 'Production Sets, Technological Knowledge, and R and D: Fragile and Overworked Constructions for Analysis of Productivity Growth?', American Economic Review, 70: 62-7. ----- (1981), 'Research on Productivity Growth and Productivity Differences: Dead Ends and New Departures', Journal of Economic Literature, 19/3: 1029 64. ----- (1989), “What is Private and What is Public about Technology?” Science, Technology and Human Values, 14(3): 229-41. ----- (1992), “U.S. Technological Leadership: Where Did It Come from and Where Did It Go?” Scherer, Frederick M. and Mark Perlman (1992), Entrepreneurship Technological Innovation. and Economic Growth: Studies in the Schumpeterian Tradition Ann Arbor: The University of Michigan Press: 25-50. ----- (1993), “Technical Change as Cultural Evolution,” Ross Thomson, ed., Learning and Technological Change. New York: St. Martin’s Press. -----, ed. (1993), National Innovation Systems: A Comparative Analysis. Oxford: Oxford University Press. ----- (1994), “What has been the Matter with Neoclassical Growth Theory,” in G. Silverberg and Luc Soete, eds. (1994), The Economics of Growth and Technical Change: Technologies, Nations, Agents, Aldershot, U.K.: Edward Elgar: 290-324. ----- (1995), “Recent Evolutionary Theories About Economic Change” Journal of Economic Literature, pp. 48-90. Nelson, Richard R and S. Winter (1973), “Recent Exercises in Growth Accounting: New Understanding or Dead End?”, American Economic Review, 73:462-468. ----- (1974), 'Neoclassical vs. Evolutionary Theories of Economic Growth: Critique and Prospectus', Economic Journal, 84: 886-905. ----- (1977), "In Search of a Useful Theory of Innovation." Research Policy 6: 36-76. ----- (1982), An Evolutionary Theory of Economic Change, Cambridge: MA, Harvard University Press. Nelson, Richard R., and Edmund Phelps (1966), "Investment in Humans, Technological Diffusion, and Economic Growth," American Economic Review, May, 56, 69-75. Pack, Howard (1987), Productivity, Technology, and Industrial Development. New York: Oxford University Press. ----- (1988), "Industrialization and Trade," Chenery, Hollis B., and T. N. Srinivasan, eds., Handbook of Development Economics. Amsterdam: North Holland, 333-80. ----- (1992), "Technology Gaps between Industrial and Developing Countries: Are there Dividends for Latecomers?" Proceedings of the World Bank Annual Conference on Development Economics. Washington, D.C.: The World Bank. ----- (1994), "Endogenous Growth Theory: Intellectual Appeal and Empirical shortcomings. " Journal of Economic Perspectives, Winter, 8, 55- 72 Pack, Howard and, Fang Ye Wang and Larry E. Westphal (1997), "Exports and Learning in Taiwan,” unpublished ms. Pack, Howard and Larry E. Westphal (1986), "Industrial Strategy and Technological Change: Theory vs Reality." Journal of Development Economics 22: 87-128. Pack, Howard, and John M. Page (1994a), "Accumulation, Exports and Growth in the High Performing Asian Countries," Carnegie-Rochester Papers on Public Policy, Winter. ----- (1994b). “Reply to Alwyn Young.” Carnegie-Rochester Papers on Public Policy, 40: 251-57. Rodrik, Dani (1992) “Closing the Productivity Gap: Does Trade Liberalization Really Help?” in: G. Helleiner, ed., Trade Policy. Industrialization and Development: New Perspectives. Oxford, Clarendon Press. ----- (1993) "Trade and Industrial Policy Reform in Developing Countries: A Review of Recent Theory and Evidence." NBER Working Paper #4417 ----- (1995) "Getting Interventions Right: How South Korea and Taiwan Grew Rich,” Economic Policy. ----- (1996), "Understanding Economic Policy Reform." Journal of Economic Literature 34 (March): 9-41. ------ (1994), "King Kong Meets Godzilla: The World Bank and the East Asian Miracle." In Albert Fishlow, et. al. Miracle or Design? Lessons from East Asia. Washington, DC: Overseas Development Council. Romer, Paul M. (1986), "Increasing Returns and Long-run Growth," Journal of Political Economy, October, 94:5, 1002-1037. ----- (1987), 'Growth Based on Increasing Returns due to Specialisation,' American Economic Review, 77, 56-62. ----- (1990a), "Endogenous Technological Change," Journal of Political Economy, October, 98, S71-102. Samsung Electronics (1993), Creativity and Innovation, Seoul: Samsung Public Relations Office. Schumpeter, J.A. (1942), Capitalism, Socialism and Democracy. New York: Harper and Brothers. Segerstrom, P. S., T. C. A. Anant and E. Dinopoulos (1990) “A Schumpeterian Model of the Product Life Cycle,” American Economic Review, 80, 1077-1091. Stiglitz, Joseph E. (1996), “Some Lessons from the East Asian Miracle,” The World Bank Research Observer, Vol. II, No. 2:151-77 Stokey, N. L. (1988), “Learning by Doing and the Introduction of New Goods,” Journal of Political Economy, 96, 701-717. Svejnar, J., and Thorbecke, E. (1980), "Determinants and Effects of Technological Choice." Paper presented at the Annual Meeting of the American Association for the Advancement of Science, San Francisco. ------ (1982), "The Determinants and Effects of Technological Choices." In Barbara Lucas, ed. Internal and External Constraints on Technological Choice in Developing Countries. London: Tooley-Bowker Publishing Company. Westphal, Larry E. (1978) “The Republic of Korea’s Experience with Export-led Industrial Development,” World Development, March 1978, 347-82. ----- (1982) “Fostering Technological Mastery by Means of Selective Infant-Industry Protection.” In Syrquin, Moshe and Simon Teitel, eds., Trade, Stability, Technology, and Equity in Latin America. New York: Academic Press, 1982, pp.255-79. ----- (1990), “Industrial Policy in an Export-Propelled economy: Lessons from South Korea’s experience”, The Journal of Economic Perspectives, Summer (41). Westphal, L. E.; Kim, L. and Dahlman, C. J. (1985), "Reflections on the Republic of Korea's Acquisition of Technological Capability," in N. Rosenberg and C. Frischtak, eds. International Transfer of Technology: Concepts, Measures, and Comparisons. New York: Praeger. World Bank (1993), The East Asian Miracle: Economic Growth and Public Policy. World Bank Policy Research Report, New York: Oxford Univ. Press. Young, A. (1991) “Learning by Doing and the Dynamic Effects of International Trade”, Quarterly Journal of Economics, 106:369-405. ----- A. (1992), "A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore." In O. J. Blanchard and S. Fischer, eds., National Bureau of Economic Research Macroeconomics Annual, pp. 13-5 4. Cambridge: MIT Press. ----- (1995), The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience, Quarterly Journal of Economics 110, 641 680. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/7713 |