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April 2008 Sungchul Chung

Evolution of the Korean Innovation System Harnessing the Potential of Science and Technology. April 2008 Sungchul Chung. Objectives. To overview the process of building technological capability within the framework of economic development in Korea To assess the Korean innovation system

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April 2008 Sungchul Chung

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  1. Evolution of the Korean Innovation SystemHarnessing the Potential of Science and Technology April 2008Sungchul Chung

  2. Objectives • To overview the process of building technological capability within the framework of economic development in Korea • To assess the Korean innovation system • To derive policy lessons

  3. Structure • Industrialization and S&T development: How Korea acquired and utilized S&T for industrialization? • How Korea built up an indigenous R&D system? • Contribution of S&T to economic development • Key characteristics of the Korean Innovation System • Policy lessons

  4. Korean growth: How far Korea has come 1 1.Where Korea was in the 1960s • Geo-political and geo-economic conditions • A small divided country relying on foreign countries for security • A resource-pour, densely populated country with small domestic market and weak technological base : Human resource was the only asset for economic development • Outward-looking development strategy based on human resources and technology

  5. Economic situation (1961) • GNP : $ 2.3 billion (1980 prices), GNP P/C : $87 • Exports : $55 million, Imports : $ 390 million • Share of manufacturing in GNP : 15% • Unemployment rate : 22.3% • One of the poorest counties in the world

  6. S&T situation • R&D manpower (1969) : 5,337 • R&D investment (1963) : $ 9.5 million (Gov’t: $ 9.2 million) • R&D organization : National Defence R&D Institute (1953) Korea Atomic Energy Research Institute (1959) • A barren land as far as S&T was concerned

  7. 1 2. Where Korea is today • Economic developments: 13th largest economy, and 12th largest trading countries in the world with a per capita income of US$ 20,000 • S&T developments: 7th largest investor in R&D with an R&D manpower of over 250,000 • Emerged as a major producer of scientific papers(13th in the world) and industrial properties (4th in the world) • Established world technological leadership in such areas as ICT, automobiles, D-RAM memory chips, LCD, ship-building,etc

  8. Technology acquisition for industrialization How Korea acquired technology for industrialization • Acquisition of technologies for development : ’60s and ’70s • Development of light industries and heavy chemical industries for import substitution and export-expansion • Generated enormous demand for technologies that were not available from domestic sources • Policy responses • Promotion of inward transfer of technologies • Developing domestic absorptive capacity to digest, assimilate and improve upon the transferred technologies

  9. Promotion of technology transfer • Policy constraints : shortage of foreign exchanges, and strong desire for economic independence • Restrictive stance toward DFI and FL • Policy relying on long-term foreign loans to finance industrial investment : “Gov’t brought in large-scale foreign loans and allocated them for investments in selected industries, which led to massive importation of foreign capital goods and turn-key plant. Industries later reverse-engineered the imported capital goods for the purpose of acquiring the necessary technologies.”

  10. Private industries’ responses • Light industries (shoes, clothing, textile…) • Rely on OEM production arrangements • Chemical industries • Resort to turn key-plant importation with technical training • Electric and machineries • Relatively more reliant on FL • DFI and FL played relatively less important role in TT in the process of industrialization of Korea. Korea relied on its HR for learning from foreign technologies transferred through informal channels.

  11. Building-up indigenous R&D system • Korean economic growth into the 1980s • Increased demand for complex and sophisticated technologies • Increasing reluctance of foreign countries to transfer technologies to Korea • Policy response : Launching the NRDP and promoting private industrial R&D • NRDP in 1982 • Policy incentives for industrial R&D : financial, fiscal, tax, etc. • But actual policy preparation had already been going on since the early 1960s

  12. Chronology of Major S&T Policy Measures • Establishment of KIST (1966), MOST (1967) • S&T Promotion Act (1967) 1960’s • Establishment of GRIs in the field of chemical & heavy industries from mid-1970s • Construction of Daeduk Science Town (Started in 1974) 1970’s • Launching of the national R&D program (1982) • Promoting private firm’s research institutes by reforming financial & tax incentives to stimulate R&D investment 1980’s • Promotion of university research: SRC, ERC, etc. • Introduction of new types of nat’l R&D programs • - Highly Advanced Nat’l Program, The 21st Century Frontier R&D Program. • Establishment of inter-ministerial coordination body: NSTC 1990’s • Introduction of National Technology Road Map (NTRM) • - To suggest TRMs for key technologies to secure products/functions. • Introduction of overall coordination system 2000’s

  13. S&T Legal System S&T Framework Law (2001) [R&D Institutes Promotion] [Promotion of Technology Development] • Technology Development Promotion Law (‘72) • Engineering Technology Promotion Law (‘73) • Biotechnology Promotion Law (‘83) • Basic Scientific Research Law (‘89) • Collaborative R&D Promotion Law (‘94) • Dual use Technology Promotion Law (’98) • Brain Science Research Promotion Law (’98) • Nano Technology Development Promotion Act (’02) • Specific Research Institute Promotion Law (’73) • Korea Atomic Energy Research Institute Act (’73) • Korea Science and Engineering Foundation Law (’76) • Industrial Research Association Promotion Law (’86) • Act on Korea Institute of Nuclear Safety (’89) • Daegu-Kyongbuk S&T Institute Law (’03) • Act on Establishment-Management & Fostering of Government-Supported S&T Research Institutes (’04) [Nuclear Energy] [HRD] [Others] • Korea Advanced Institute of S&T Law (’80) • Professional Engineers Law (’92) • Gwangju Institute of S&T Law (’93) • Female Scientists and Engineers Act (’02) • Scientists and Engineers Mutual Aid Association Act (’02) • Special Law for Reinforcing National S&T Competitiveness (’04) • Atomic Energy Act (’58) • Nuclear Liability Act (’69) • Act on Governmental Contract for • Indemnification of Nuclear Damage (’75) • Law for Physical Protection of Nuclear Facilities (’03) • Radiation & Radioisotope Promotion Act (’02) • Meteorological Service Act (’61) • Standard Time Act (’86) • Science Museum Act (’91) • Presidential Advisory Council on S&T Law (’91) • Daedeok Science Town Management Law (’93)

  14. Source: OECD, Education at a Glance, 2005. Human Resource Developments • Human resource: Educational attainment Source: Author’s compilation from government’s statistical resources. • Literacy scores of PISA 2000

  15. Ministry Year initiated Major program Management agencies Ministry of Science and Technology 1982 Specific R&D Program Korea Institute of Science & Technology Evaluation & Planning (KISTEP) Korea Science & Engineering Foundation (KOSEF) Ministry of Commerce, Industry and Energy 1987 1988 Industrial Base Technology Development ProgramAlternative Energy Development Program Korea Institute of Industrial Technology Evaluation & Planning (ITEP) Ministry of Information and Communications 1989 IC Technology Development Program Institute of Information Technology Assessment (IITA) Ministry of Environment 1992 1996 Environmental Engineering Technology Development Program Environmental Basic Technology Development Program National Institute of Environmental Research (NIER) Ministry of Construction and Transportation 1994 Construction Technology Development Program Korea Institute of Construction Technology (KICT) Ministry of Agriculture and Forestry 1994 Agricultural Technology Development Program Agricultural R&D Promotion Center (ARPC) Ministry of Health and Welfare 1995 Health and Medical Technology Development Program Korea Health Industry Development Institute (KHIDI) Ministry of Education 1983 Basic Scientific Research Support Program Korea Research Foundation (KRF) Government R&D • Government R&D Programs

  16. National R&D programs Infrastructure and diffusion Institutional support Incentives Objectives To develop core industrial technologies To enhance intermediary functions and to fill the gaps among innovation actors To nurture GRI and to strengthen GRIs’ research capabilities To induce or assist private enterprises’ technology development activities Tools Ministries’ R&D programs Research personnel, technical information, cooperative R&D facilities, regional R&D centers, spin-offs, etc. Funding for GRIs’ operational expenses and basic research Tax-exemptions, financial support, subsidy for technology development Effects on industry To expand knowledge and the technology pool for industrial use To facilitate diffusion and to make better industry use of technologies To bring up helper or partner for industry’s technology development To strengthen industry’s own technological capabilities Industrial technology policy • Industrial Technology Policy

  17. R&D Input-based growth Knowledge-based growth GERD Semi-conductor, digital appliances, IT, ….. 24,155 -RIS -New Growth Engine -TT Automobiles, Ships, Computer, Semi-conductor -Industrial Base Development Program -Promotion of Ventures -KOSDAQ Apparels, Steel, Chemicals, Construction, Home application -MOST: HAN Project -MOCIE: Industrial Base TD Program -MIC: IT, R&D 13,849 Wig Plywood -R&D Tax Incentive -Industrial R&D Center -NRDB -TD Reserve Fund -PE System 3,210 212 1970 1980 1990 2000 2005 MOST MOCIE, MIC, MOE, ….. Regional gov’s R&D Tax Incentive(’81) Tariff Debation for R&D Equipment(’82) Tax Technology Development Reserve Fund(’72) Special Tax Incentives for Foreign Engineers(’02) - Law for the Promotion of Start-ups(’91) - Financial Support for Industrial Development(’86) - S&T Promotion Fund(’93) - IT Promotion Fund(’93) KTB(’82) Korea Technology Promotion Corp.(’74) Financial -Industrial Base Technology Development Program(’87) NRDP(’82) -New Growth Industries (’03) - Regional Cluster Program (’03) R&D Subsidies • Government’s role: RDI support programs by stage TT

  18. Number of Program Budgets (2005) No. % Million $ % Tax 17 6.6 1,480* 15.9 Financial 15 5.8 3,402** 36.6 Procurement 2 0.8 394 4.2 Legal, etc. 29 11.2 34 0.4 HRD 29 11.2 106 1.1 R&D Subsidy 77 29.7 3,253 35.0 T Trade 8 3.1 61 0.7 T Transfer 33 12.7 225 2.4 T Consulting 27 10.4 44 0.5 T Information 22 8.5 294 3.2 Total 259 100.0 9,296 100.0 • RDI Support programs : 2005 * Tax revenue foregone ** Amount of loan available

  19. R&D Expenditures in Korea 25,000 20,000 15,000 10,000 5,000 0 Billion Won • Growth of R&D investment • 6th largest R&D investor among OECD countries Note: Upper portion of the bar refers to industry contribution, and the lower parts that of the government.

  20. Trend of Korea’s R&D expenditures • Private industries account for over 75% of the GERD Source: Ministry of Science and Technology, Republic of Korea

  21. Investment in knowledge vs machinery & equipment selected OECD countries 1998 as % GDP * Knowledge = investments in R&D, software, and higher education. Investments in knowledge would exceed av in machinery & equipment if total investment in education were included.

  22. Outward-looking Development Strategy LE-oriented Industrial Policy + Economic Development International Market Pressure for Competitiveness Demand for Technology Pressure for R&D Industrial R&D Competitiveness Supply of R&D Resources Human resource Financial resource S&T Development S&T policy/RDI Support Programs / Measures Factors behind the developments

  23. Factors behind the growth • Demand side : Outward looking development  export-orientation of industries  pressure from international market for technological competitiveness  increased demand for R&D investment • Supply side • Financial resources : Large-firm-oriented industrial development  chaebol system  increased abilities of private industries to finance long-term, risky R&D projects • Human resource : Korea prepared itself well for R&D by investing heavily in education and HRD • S&T infrastructure: institutions, legal systems, policy, programs, etc.

  24. Economic consequences of the developments • R&D Outputs • Number of KPO patents granted • Number of US patents granted to Koreans : 7th in the world • Number SCI publications : 13th in the world (Highest growth) • Established world prominence in such areas as : LCD, semi-conductors, PDP, cellular phones, etc.

  25. Most knowledge intensive OECD economies: Share of knowledge industries in GDP (1998) *Knowledge Industries=high and medium tech, post and telecom, finance and insurance, business services (excluding real estate activities)

  26. 0.4 0.3 0.292 0.226 0.190 0.2 0.190 0.149 0.125 0.1 0 Japan OECD Korea Italy Canada USA R&D Elasticity of TFP (1991~2004)

  27. 1971-1989 1990-2004 1971-2004 Growth by (%) share (%) Growth by (%) share (%) Growth by (%) share (%) Labor 2.22  29.1 1.17 20.4 1.75  25.9 Capital 3.24 42.5 2.58 45.0 2.95  43.4 TFP 2.16  28.4 1.98 34.6 2.08  30.7 R&D Stock 1.77  23.3 1.74 30.4 2.07  30.6 Real growth 7.62 100 5.73 100 6.79  100 Contributions of Factors to Growth (1971~2004)

  28. Thousands of constant 1995 US dollars 14 12 Difference attributed to knowledge 10 8 6 Difference due to physical and human capital 4 2 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 • GDP/Capita growth: Korea vs Ghana Knowledge makes the Difference between Povery and Wealth... (World Bank) Rep. of Korea Ghana

  29. Average GDP/Capital Growth Rates (1965-2002)

  30. Key characteristics of KIS • Strength and weakness • Strength • Consensus on the importance of S&T: Dynamism of Korean business enterprises plus strong commitment of the government to S&T-based national development • Economic environments conducive to active innovation: Domestic firms’ exposure to international markets--pressure for R&D • Chaebol system: Financial capability to invest in long-term risky projects • Human resources • Growing scientific achievements:publications, IPR, etc • Attained technological leadership in selected areas

  31. Weakness • Disadvantage of being small • Imbalances in innovation system 1. Basic scientific research vs technological development 2. Large firms vs SMEs 3. Regional concentration • Excessive reliance on private investment: vulnerable to changes in markets • Weak industry-science relationship • Insufficient internationalization: insufficient R&D DFI, international co-invention, etc.

  32. Policy Lessons • Lessons • Market competition is the very source of motivation for innovation • Pressure for technological competitiveness • Effectiveness of the outward-looking development strategy for small economies • Human resource is the key to learning • Government can play effectively the role of facilitator and promoter at the early stage of development • The efficiency of an NIS hinges very much upon ISR

  33. Thank you!

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