Evolution of the Korean
Innovation System
Harnessing the Potential of Science and
Technology
April 2008
Sungchul Chung
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
1
1
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
2
2
Korean growth: How far Korea has come
1
1.Where Korea was in the 1960s
 Geo-political and geo-economic conditions
3

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
3
 Economic situation (1961)
4

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
4
 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
5
5
2. Where Korea is today
1
 Economic developments: 13th largest economy, and 12th largest
trading countries in the world with a per capita income of
US$ 20,000
 S&T developments: 7th largest investor in R&D with an R&D
manpower of over 250,000
 Emerged as a major producer of scientific papers(13th in the
world) 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
6
6
Technology acquisition for industrialization
How Korea acquired technology 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
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7
 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.”
8
8
 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.
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9
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
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
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10
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
11
• Introduction of National Technology Road Map (NTRM)
- To suggest TRMs for key technologies to secure products/functions.
• Introduction of overall coordination system
11
S&T Legal System
S&T Framework Law (2001)
[R&D Institutes Promotion]
[Promotion of Technology Development]
 Technology Development Promotion Law (‘72)
Specific Research Institute Promotion Law (’73)
 Engineering Technology Promotion Law (‘73)
Korea Atomic Energy Research Institute Act (’73)
 Biotechnology Promotion Law (‘83)
Korea Science and Engineering Foundation Law (’76)
 Basic Scientific Research Law (‘89)
Industrial Research Association Promotion Law (’86)
 Collaborative R&D Promotion Law (‘94)
Act on Korea Institute of Nuclear Safety (’89)
 Dual use Technology Promotion Law (’98)
Daegu-Kyongbuk S&T Institute Law (’03)
 Brain Science Research Promotion Law (’98)
Act on Establishment-Management & Fostering of
Government-Supported S&T Research Institutes (’04)
 Nano Technology Development Promotion Act (’02)
[Nuclear Energy]
[HRD]
[Others]
Atomic Energy Act (’58)
 Korea Advanced Institute of S&T Law (’80)
Meteorological Service Act (’61)
Nuclear Liability Act (’69)
 Professional Engineers Law (’92)
Standard Time Act (’86)
Act on Governmental Contract for
 Gwangju Institute of S&T Law (’93)
Science Museum Act (’91)
Indemnification of Nuclear
Damage (’75)
 Female Scientists and Engineers Act (’02)
Presidential Advisory Council on
S&T Law (’91)
Law for Physical Protection of
Nuclear Facilities (’03)
Radiation & Radioisotope
Promotion Act (’02)
12
Scientists and Engineers Mutual Aid
Association Act (’02)
Special Law for Reinforcing National S&T
Competitiveness (’04)
Daedeok Science Town
Management Law (’93)
12
Human Resource Developments

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
Source: Author’s compilation from government’s statistical resources.

Literacy scores of PISA 2000
Korea
Japan
Germany
s cience
math
reading
Canada
US
UK
OECD Av erage
0
100
200
300
400
500
600
Source: OECD, Education at a Glance, 2005.
13
13
Government R&D
 Government R&D Programs
Ministry
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
1987
1988
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 Program
Institute of Information Technology Assessment
(IITA)
Ministry of
Environment
1992
1996
Environmental Engineering Technology
Development Program
Environmental Basic Technology
Development Program
National Institute of Environmental Research
(NIER)
1994
Construction Technology Development
Program
Korea Institute of Construction Technology
(KICT)
Ministry of Agriculture
and Forestry
1994
Agricultural Technology Development
Program
Agricultural R&D Promotion Center (ARPC)
Ministry of Health and
Welfare
1995
Health and Medical Technology
Development Program
Korea Health Industry Development Institute
(KHIDI)
Ministry of Education
1983
Basic Scientific Research Support
Program
Korea Research Foundation (KRF)
Ministry of
Construction and
Transportation
14
14
Industrial technology policy
 Industrial Technology Policy
National R&D
programs
Infrastructure and
diffusion
Institutional support
Incentives
To 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
Tools
Ministries’
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 for
technology
development
Effects
on
industry
To expand
knowledge and the
technology pool for
industrial use
To facilitate diffusion and to make
better industry use of technologies
To bring up
helper or partner for
industry’s technology
development
To strengthen industry’s
own technological
capabilities
Objectives
15
15

Government’s role: RDI support programs by stage
GERD
Input-based growth
R&D
Knowledge-based growth
-RIS
-New Growth
Engine
-TT
-MOST: HAN Project
-MOCIE: Industrial Base
TD Program
-MIC:
IT, R&D
-R&D Tax Incentive
-Industrial R&D Center
-NRDB
3,210
-TD Reserve Fund
-PE System
24,155
-Industrial Base
Development Program
-Promotion of Ventures
-KOSDAQ
13,849
212
1970
1980
1990
Tax
Financial
R&D
Subsidies
16
Korea Technology Promotion
Corp.(’74)
2005
MOCIE, MIC, MOE, …..
MOST
Technology Development
Reserve Fund(’72)
2000
R&D Tax Incentive(’81)
Tariff Debation for R&D
Equipment(’82)
Regional gov’s
Special Tax Incentives for
Foreign Engineers(’02)
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)
16
 RDI Support programs : 2005
Number of Program
No.
Budgets (2005)
%
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
* Tax revenue foregone
** Amount of loan available
17
17
 Growth of R&D investment
R&D Expenditures in Korea
25,000
24,155
Billion Won
20,000
17,325
15,000
13,849
12,186
10,000
10,741
5,000
4,035
773
1,538
1982
1985
0
1990
1995
1997
2000
2002
2005
Note: Upper portion of the bar refers to industry contribution, and the lower parts that of the government.
6th largest R&D investor among OECD countries
18
18
 Trend of Korea’s R&D expenditures
Source: Ministry of Science and Technology, Republic of Korea
Private industries account for over 75% of the GERD
19
19
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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20
Factors behind the developments
Economic
Development
Demand for
Technology
Outward-looking
Development Strategy
+
LE-oriented
Industrial Policy
International Market Pressure
for Competitiveness
Pressure for R&D
Industrial
R&D
Supply of R&D
Resources
S&T
Development
21
Human resource
Competitiveness
Financial resource
S&T policy/RDI Support Programs / Measures
21
 Factors behind the growth

Demand side : Outward looking development  exportorientation of industries  pressure from international market
for technological competitiveness  increased demand for
R&D investment

Supply side
o
o

22
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
Economic consequences of the developments
 R&D Outputs

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



23
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, semiconductors, PDP, cellular phones, etc.
23
Most knowledge intensive OECD economies: Share of
knowledge industries in GDP (1998)
COUNTRY
Knowledge
Industries*
Education
& Health
Total
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)
24
24
R&D Elasticity of TFP (1991~2004)
0.4
0.3
0.292
0.226
0.2
0.190
0.190
0.149
0.125
0.1
0
OECD
25
Japan
USA
Korea
Italy
Canada
25
Contributions of Factors to Growth (1971~2004)
1971-1989
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
1.77
23.3
1.74
30.4
2.07
30.6
7.62
100
5.73
100
6.79
100
R&D
Stock
Real growth
26
1990-2004
26
 GDP/Capita growth: Korea vs Ghana
Knowledge makes the Difference between Povery and Wealth...
(World Bank)
Thousands of constant 1995 US dollars
14
12
Rep. of Korea
10
Difference
attributed to
knowledge
8
6
4
2
Ghana
Difference due
to physical and
human capital
0
1960
27
1965
1970
1975
1980
1985
1990
1995
2000
27
Average GDP/Capital Growth Rates (1965-2002)
28
28
Key characteristics of KIS
 Strength and weakness
29

Strength

Consensus on the importance of S&T: Dynamism of Korean
business 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
29

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
markets

Weak industry-science relationship

Insufficient internationalization: insufficient R&D DFI, international
co-invention, etc.
30
30
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

31
The efficiency of an NIS hinges very much upon ISR
31
Thank you!
32
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