National System of Industrial Innovation: Dynamics of Capability Building in Korea

Abstract

Abstract South Korea (hereafter Korea) has emerged as one of the fastest growing economy and has been transformed from a subsistent agricultural country into a newly industrial one during the past quarter century. As late as 1961, Korea suffered from almost all difficulties facing most poor countries today. But beginning in 1962, the Korean economy grew at an average annual growth rate of almost 9%, raising GNP per capita in current prices from $87 in 1962 to $4936 in 1989. Exports increased from a mere $40 million in 1953 to $62 billion in 1989. The share of manufactured goods in exports increased from 14.3 to 95.0% during the same period. In the mid-1960s, Korea began exporting textile, apparel, plywood, and other labor-intensive products. Ten years later, ships, steel, and construction services from Korea challenged established suppliers from the advanced countries. By the mid-1980s, computers, semiconductor memory chips, video cassette recorders, and automobiles were added to the list of Korea’s major export items. By the end of the 1980s, Korea’s R&D investment as a fraction of GNP and the number of scientists and engineers as a fraction of the work force were approaching the levels of some of the highly industrialized countries of Europe. What made it possible for Korea to achieve such a phenomenal growth in industrialization? Will Korea be able to sustain the growth in the future? As a way to answer these questions, this chapter presents Korea’s national system related to industrial innovation, which influences to a great extent the direction and pace of technological capability development that in turn lead to industrialization. The main focus of this chapter will be concerned with describing the industrial innovation system as of this new era in Korea’s industrial history. It is, however, also important to examine how the national system in the past has worked for Korea to acquire technological capabilities that brought the country where it is today.