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April 2008Sungchul Chung
Evolution of the Korean Innovation SystemHarnessing the Potential of Science and Technology
22
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
33
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
44
Korean growth: How far Korea has come
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
1.Where Korea was in the 1960s1
55
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
66
S&T situation
R&D manpower (1969) : 5,337
R&D investment (1963) : $ 9.5 million (Gov’t: $ 9.2 mil
lion)
R&D organization : National Defence R&D Institute (195
3) Korea Atomic Energy Research Institute (1959)
A barren land as far as S&T was concerned
77
Economic developments: 13th largest economy, and 12th largest
trading countries in the world with a per capita income of US$ 2
0,000
S&T developments: 7th largest investor in R&D with an R&D m
anpower of over 250,000
Emerged as a major producer of scientific papers(13th in the wor
ld) 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
2. Where Korea is today1
88
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
How Korea acquired technology for industrialization
Technology acquisition for industrialization
99
Promotion of technology transfer
Policy constraints : shortage of foreign exchanges, and strong desir
e for economic independence
Restrictive stance toward DFI and FL
Policy relying on long-term foreign loans to finance industrial investm
ent : “Gov’t brought in large-scale foreign loans and allocated them f
or investments in selected industries, which led to massive importatio
n of foreign capital goods and turn-key plant. Industries later reverse
-engineered the imported capital goods for the purpose of acquiring t
he necessary technologies.”
1010
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.
1111
Korean economic growth into the 1980sIncreased 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
Building-up indigenous R&D system
1212
Chronology of Major S&T Policy Measures
1960’s• Establishment of KIST (1966), MOST (1967)• S&T Promotion Act (1967)
1970’s• Establishment of GRIs in the field of chemical & heavy industries from mid
-1970s • Construction of Daeduk Science Town (Started in 1974)
1980’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
1990’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
2000’s• Introduction of National Technology Road Map (NTRM) - To suggest TRMs for key technologies to secure products/functions. • Introduction of overall coordination system
1313
S&T Legal System
S&T Framework Law (2001)
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)
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)
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)
[Promotion of Technology Development] [R&D Institutes Promotion]
[Nuclear Energy] [HRD] [Others]
1414
Literacy scores of PISA 2000
0 100 200 300 400 500 600
OECD Average
UK
US
Canada
Germany
Japan
Korea
science
math
reading
Source: OECD, Education at a Glance, 2005.
Source: Author’s compilation from government’s statistical resources.
Human resource: Educational attainment
Human
resources
1960 1970 1980 1990 2000
Illiteracy rate (percentages) 29.4 12.4 7.2 4.1 2.2
University enrollment ratio of HS graduates (percentages)
29.2 29.0 37.7 34.3 74.2
Number of university graduates 20,452 29,544 62,688 178,631 244,852
- Percentage share of science & engineering graduates 34.6 45.7 46.4 40.9 44.5
Human Resource Developments
1515
Government R&D ProgramsMinistry
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
19871988
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 ProgramInstitute of Information Technology Assessment
(IITA)
Ministry of Environment
19921996
Environmental Engineering Technology Development Program
Environmental Basic TechnologyDevelopment Program
National Institute of Environmental Research (NIER)
Ministry of Construction and Transportation
1994Construction Technology Development
ProgramKorea Institute of Construction Technology
(KICT)
Ministry of Agriculture and Forestry
1994Agricultural Technology Development
ProgramAgricultural R&D Promotion Center (ARPC)
Ministry of Health and Welfare
1995Health and Medical Technology
Development ProgramKorea Health Industry Development Institute
(KHIDI)
Ministry of Education 1983Basic Scientific Research Support
ProgramKorea Research Foundation (KRF)
Government R&D
1616
Industrial Technology Policy
Industrial technology policy
National R&Dprograms
Infrastructure anddiffusion
Institutional support Incentives
ObjectivesTo 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
ToolsMinistries’
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 fortechnology
development
Effectson
industry
To expand knowledge and the technology pool for
industrial use
To facilitate diffusion and to make better industry use of technologies
To bring uphelper or partner for
industry’s technologydevelopment
To strengthen industry’s own technological
capabilities
1717
1970 1980 1990 2000 2005
Wig
Plywood
Apparels, Steel,
Chemicals,
Construction,
Home application
Automobiles,
Ships, Computer,
Semi-conductor
-TD Reserve Fund
-PE System
-R&D Tax Incentive-Industrial R&D Center-NRDB
-MOST: HAN Project-MOCIE: Industrial Base TD Program-MIC: IT, R&D
-Industrial Base Development Program-Promotion of Ventures-KOSDAQ
-RIS-New Growth Engine-TT
212
3,210
13,849
24,155
R&DInput-based growth
Semi-conductor, digital
appliances, IT, …
..
Knowledge-based growthGERD
MOST MOCIE, MIC, MOE, ….. Regional gov’s
Technology Development Reserve Fund(’72)
R&D Tax Incentive(’81) Tariff Debation for R&D Equipment(’82)
Special Tax Incentives for Foreign Engineers(’02)
Korea Technology Promotion Corp.(’74)
KTB(’82)- Law for the Promotion of Start-ups(’91)- Financial Support for Industrial
Development(’86)- S&T Promotion Fund(’93)- IT Promotion Fund(’93)
NRDP(’82) -Industrial Base Technology Development Program(’87)
-New Growth Industries (’03)- Regional Cluster Program (’03)
Tax
Financial
R&D Subsidies
Government’s role: RDI support programs by stage
TT
1818
RDI Support programs : 2005
100.09,296100.0259Total
3.22948.522T Information
0.54410.427T Consulting
2.422512.733T Transfer
0.7613.18T Trade
35.03,25329.777R&D Subsidy
1.110611.229HRD
0.43411.229Legal, etc.
4.23940.82Procurement
36.63,402**5.815Financial
15.91,480*6.617Tax
%Million $%No.
Budgets (2005)Number of Program
* Tax revenue foregone ** Amount of loan available
1919
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.
Bill
ion W
on
R&D Expenditures in Korea
24,155
17,325
13,84912,186
10,741
4,0351,538773
1982 1985 1990 1995 1997 2000 2002 2005
25,000
20,000
15,000
10,000
5,000
0
2020
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
2121
Investment in knowledge vs machinery & equipment selected OECD countries 1998 as % GDP
Country Knowledge*Machinery & Equipment
Sweden 6.5 7.9
United States 6.0 9.1
Korea 5.2 10.5
Finland 5.2 7.0
Switzerland 4.8 9.9
Canada 4.7 9.4
Japan 4.7 10.5
OECD average 4.7 9.0
* 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.
2222
Outward-looking Development Strategy
International Market Pressure for Competitiveness
IndustrialR&D
Competitiveness
Pressure for R&D
Human resource Financial resource
S&T policy/RDI Support Programs / Measures
Economic Development
Demand for Technology
Supply of R&D Resources
S&T Development
LE-orientedIndustrial Policy+
Factors behind the developments
2323
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 sideo Financial resources : Large-firm-oriented industrial developme
nt chaebol system increased abilities of private industries to finance long-term, risky R&D projects
o 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.
2424
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.
1981 1985 1990 1995 2000 2004
Number 1,808 2,687 7,620 12,512 34,579 45,298
Korean share 12.8 13.0 33.5 52.5 65.6 66.7
2525
Most knowledge intensive OECD economies: Share of knowledge industries in GDP (1998)
COUNTRYKnowledge Industries*
Education
& HealthTotal
US 30.0 11.6 41.6
Germany 31.0 10.3 41.2
UK 28.1 11.6 39.8
France 26.4 11.7 38.1
Holland 25.9 11.3 37.2
Euro Union 26.1 10.9 37.0
Hungary 25.9 9.1 35.0
Korea 26.1 7.8 33.9
*Knowledge Industries=high and medium tech, post and telecom, finance and insurance, business services (excluding real estate activities)
2626
0.292
0.226
0.1490.125
0.190 0.190
0
0.1
0.2
0.3
0.4
OECD Japan USA Korea Italy Canada
R&D Elasticity of TFP (1991~2004)
2727
Contributions of Factors to Growth (1971~2004)
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
2828
Rep. of Korea
Ghana0
2
4
6
8
10
12
14
1960 1965 1970 1975 1980 1985 1990 1995 2000
Thousands of constant 1995 US dollars
Difference attributed to knowledge
Difference due to physical and human capital
GDP/Capita growth: Korea vs Ghana
Knowledge makes the Difference between Povery and Wealth...(World Bank)
3030
Strength and weakness Strength Consensus on the importance of S&T: Dynamism of Korean busine
ss 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
Key characteristics of KIS
3131
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 ma
rkets
Weak industry-science relationship
Insufficient internationalization: insufficient R&D DFI, international
co-invention, etc.
3232
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