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July 2008 Sungchul Chung

Evolution of the R&D System in Korea: Harnessing the Potential of Science and Technology for Economic Development. July 2008 Sungchul Chung. Objectives. To overview the process of building technological capability within the framework of economic development To assess the Korean R&D system

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July 2008 Sungchul Chung

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  1. Evolution of the R&D System in Korea: Harnessing the Potential of Science and Technology for Economic Development July 2008Sungchul Chung

  2. Objectives • To overview the process of building technological capability within the framework of economic development • To assess the Korean R&D system • To derive policy lessons

  3. Structure • Industrialization and R&D: How Korea has acquired and utilized S&T for industrialization? • Contribution of R&D to economic development • International R&D cooperation • Key characteristics of the Korean R&D System • Policy lessons

  4. S&T has been the key source of growth Where Korea was in the 1960s • Geo-political and geo-economic situation • A small divided country relying on foreign countries for security: social and political instability • A resource-poor, densely populated country with small domestic market and weak technological base: industrial base totally devastated during the Korean war (1950-53)

  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. Human resource situation: Educational attainment • Source: Author’s compilation from government’s statistical resources. • Human resource was the only asset for economic development •  Outward-looking development strategy based on human resources and technology

  8. 10,000 5,000 1945 1953 1962 1970 1980 1990 1995 1998 2003 2007 • The Growth path of the Korean economy 20,000 12,646 11,432 7 Five-Year Economic Development Plans 7,355 Per capita GNI(US$) 1,000(1977) 87 100(1964) 67 Liberation (1945) Korean War (1950~53) Big Push Join OECD (1996) Financial Crisis (1997) Source: World Bank

  9. 14,000 Korea, Rep. of 12,000 Difference in output due to TFP growth or knowledge accumulation in Korea 10,000 8,000 Real GDP per capita (2000 US$) 6,000 Mexico 4,000 Difference in output due to growth in labor and capital in Korea 2,000 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: World Bank • Effect of Knowledge on Korea’s Long-Term Economic Growth (1960~2005)

  10. How Korea acquired technologies 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

  11. 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.” • Creation of GRI’s in strategic areas to facilitate industrial technology adoption and assimilation – R&D to help industries adapt, assimilated and improve upon new technologies transferred from foreign sources

  12. 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 • NRD P 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

  13. R&D strategies by development stage

  14. 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 industrial R&D by offering financial & tax incentives 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 • National Technology Road Map (NTRM) • - To suggest TRMs for key technology areas • Introduction of overall coordination system • - Office of S&T Innovation in MOST was created in Oct. 2004 2000’s

  15. 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 and Promotion of Government 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)

  16. 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

  17. 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.

  18. R&D manpower

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

  20. 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 Policy S&T policy/RDI Support Programs / Measures Factors behind the growth

  21. 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.

  22. ^ Z-values b Tax 0.303 4.13 Financial 0.224 2.74 Procurement 0.148 1.06 Manpower 0.150 1.95 Legal, etc. 0.293 3.57 Indirect 0.265 2.42 • Effectiveness of RD&I Support Programs: Contribution of government policy (an Example) R(g=1) = F(cb) P(g=0) = 1 - F(cb) P : Probability to innovate X : Explanatory variables, including RDI support programs b : Parameters No of observation : 1,710 (STEPI Survey)

  23. Marginal effects of RDI support programs

  24. Contribution of R&D to economic growth • R&D Outputs • Number of KPO patents granted • Number of US patents granted to Koreans : 7th in the world • Number SCI publications : 14th in the world (Highest growth) • Established world prominence in such areas as : LCD, semi-conductors, PDP, cellular phones, etc.

  25. 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)

  26. 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)

  27. International R&D cooperation • International R&D cooperation as a channel for learning: a Korean approach in the early phase of development • To compensate for the inadequacy of domestic R&D capability, the government launched a program entirely for international joint R&D in the late 1980’s • As such, the international cooperative R&D funds have been mostly directed toward those involving advanced countries, say, the US, EU countries, Japan, etc. - Korea-US joint R&D programs account for about 42% of the total expenditures on international joint R&D, Korea-Japan 8%, multilateral 28%, etc. (2007, expenditures by individual R&D programs that involve foreign resources and/or personnel excluded) • Such a policy is being changed so that increasing emphases are placed on cooperation with developing countries and multilateral cooperation • So far, most of S&T cooperation with developing countries have been funded by the KOICA, which is executing Korea’s ODA programs.

  28. Cooperation with developing countries • Korea’s S&T cooperation with developing countries has been directed toward capacity –building, such as: - STEPI collaborated with the Egyptian government in investigating the feasibility of developing an Industrial Technology Center in Egypt that included studies on strategies for human resource development, financing schemes and managing systems. (2000-2002)(Financed by KOICA) - In 2005, STEPI worked together with the Algerian government to develop a Master Plan of Sidi-Abdellah S&T Town Development, also with the financial assistance of KOICA - KOICA is also promoting a cooperative program with Tunisia for building capacity in R&D planning and management – STEPI is also involved in this. - Currently, the South African Republic is the only African country that has joint R&D program with Korea

  29. Cooperation with developing countries • With SE Asian countries, Korea’s R&D cooperation has been centered on food, food processing, agriculture and also sharing experiences in S&T planning: - Development of hybrid rice was a product of long cooperation with the Philippines in the 1960’s through to 1980’s. - Korean GRIs and SEA R&D organizations have been and are collaborating for the development of technologies related to food processing and agricultural development. - Currently, STEPI is working with the Vietnamese government for the formulation of a new Five-year S&T Development Plan(2011-2015) – for this, STEPI conducted a diagnostic review of the Vietnamese Innovation System and made suggestions on the direction of the plan

  30. Key characteristics of Korean R&D System • Key factors that influenced the R&D system • Outward-looking development strategy Pressure for R&D investment • Government policy toward FDI and TT Focus on indigenous R&D • Government-led industrial development • Industry-targeting Inter-industry R&D imbalance • Favoring large enterprises R&D system biased for large firms/Financial capability to invest in R&D • S&T for industrialization R&D system biased toward technology development • Rich pool of well educate HRST  High absorptive capacity • Government-led development of S&T infrastructure  Relative importance of GRIs

  31. 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

  32. Policy Lessons • Suggestions for cooperation • Differences in S&T systems may hinder interactions exchanges between Korean and African science communities - Korea: a hybrid system influenced by the US and Japan - Africa: Strong influences from European systems - To promote cooperation, efforts should be made to enhance mutual understanding on S&T systems • Both sides need to work together to identify mutually beneficial areas for cooperation - From a Korean point of view, both sides may benefit from cooperating in various areas including agriculture, water management, technical training, policy training, etc • The key to realizing cooperation is political actions --

  33. Thank you!

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