Other Research INNOVATIVE KOREA: Leveraging Innovation and Technology for Development September 20, 2023
September 20, 2023
The Republic of Korea is one of the few low-income economies that has successfully developed into a high-income economy in recent history, making it a valuable case study. Korea today is a highly industrialized, global innovation and technology leader and the 10th largest economy in the world, with per capita income approaching the average of Organisation for Economic Co-operation and Development (OECD) countries. However, in the 1950s, Korea was one of the poorest countries in the world, with decidedly bleak prospects, making the country a well-known case study of successful development.
This report summarizes the sources of Korea’s remarkable growth performance and the policies and institutional reforms that made it possible. This overview is organized into three sections: Key Drivers of Korea’s Remarkable Growth Performance, Policy and Institutional Transformation, and Lessons for Developing Countries. The report focuses on Korea’s successful transition from middle income to a high-income economy in the 1990s and its economy and policies since then. The report highlights its escape from the “middle-income trap” by leveraging innovation and technology for development. Although the universality of the middle-income trap concept has been debated, it draws attention to the difficulty of sustaining growth over the long run, which is required to become a high-income economy.
The foundations of Korea’s growth over the past 50 years have been high levels of investments in physical and human capital, expansion of manufacturing exports, and industrialization and the result-ing structural transformation of the economy. In the earlier to middle decades of its modern develop-ment, Korea’s growth was led by a “developmental state” model that guided private investment through targeted industrial policies. To succeed in the transition from middle to high income that has eluded so many other countries, Korea had to transform its growth model. It had reached the limits of relying on government promotion and guidance of investment, which drove growth at a lower income level, and instead needed to shift to a more private sectorled growth model with a greater emphasis on productivity and innovation-led growth.
The need to evolve became urgent when the shortcomings of the developmental state model were exposed by the Asian Financial Crisis (AFC) in 199798. Along with the transition to a democracy in the 1980s, the AFC was a defining moment in Korea’s modern development history that built a national consensus on the need to take decisive actions on much-needed reforms of the country’s growth para-digm, to increase the emphasis on promoting markets and the development of frontier innovation and technologies. The focus of industrial policies was transformed from targeting large firms and industries to prioritizing support for small and medium-size enterprises (SMEs) and technology entrepreneurs. Exports increased significantly through greater integration into global value chains (GVCs) facilitated by expanding overseas direct investments (ODIs). Investment in human capital development contin-ued, complemented by an expanded social safety net and a more integrated, market-based and demand- oriented approach to education and training.
About the Editors
Chapter 1 The Foundation of Korea’s Long-Run Growth
Chapter 2 Korea’s Transition to a High-Income Economy
Chapter 3 Transformation of Korea’s Growth Paradigm
Chapter 4 Leveraging Global Integration and International Trade
Chapter 5 Promoting Innovation and Technology
Chapter 6 Investing in Human Capital and Strengthening the Labor Market
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