April 2008 Sungchul Chung Evolution of the Korean Innovation System Harnessing the Potential of Science and Technology.

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

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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

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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

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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

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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

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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

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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.

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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.

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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

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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)

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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)

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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

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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)

2929

Average GDP/Capital Growth Rates (1965-2002)

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

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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.

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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

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Thank you!