The Path to Development and Macroeconomic Stability in Korea
Chapter 1: Introduction
South Korea (hereafter Korea) has been a symbol of fast economic growth for several decades. Such achievement has been characterized as a successful “catch-up” in the sense that Korea has avoided the middle-income trap and steadily closed the gap with Japan or the US in terms of per capita income, for instance, reaching 95% of the Japanese level in the 2010s. Given that Japan, in particular Japanese industrial policy, was the role model for Korea, the focus of the earlier literature was on the role of the government vs. markets in catching-up development (Amsden 1989; Chang 1994; World Bank 1993). Subsequently, other views were put forward, such as the technology-oriented view (OECD 1992; L. Kim 1997a), which focused on explaining the process with which a latecomer economy like Korea tried to catch up with forerunning economies by assimilating and adapting the relatively obsolete technology of advanced countries. In this view, catching-up is considered as a question of relative speed in a race along a fixed trajectory or path. However, Lee and Lim (2001) indicated that a latecomer does not simply follow the path of the forerunner, but often skips some stages or even creates a path that is different from those of the forerunners. This observation is consistent with the leapfrogging thesis, which has become a very influential concept after it was first proposed by neo-Schumpeterian economics. Perez and Soete (1988) argued that a changing techno-economic paradigm could serve as a window of opportunity for latecomers who skip investment into the existing vintage of technologies, but leapfrog into emerging technologies. This book takes up this concept of leapfrogging as the focus, and utilizes this concept to explain the catch-up by Korean firms and economy. An important window of opportunity for leapfrogging by Korean industries was the emergence of digital technology, which Korean firms promptly adopted to produce digital products, whereas Japanese firms were stuck in the incumbent trap of staying with the products of existing analogue technologies. Thus, the two key chapters in this book are Chapter 8 and Chapter 9. Chapter 8 analyzes the evolution of selected industries in Korea in the 1980s and 1990s, and finds three different patterns of catch-up by Korean firms in world market shares, namely, path-creating (mobile phone), stage-skipping (D-RAM [dynamic random-access memory] and automobile), and path-following (audio equipment, PCs, and machine tools). Chapter 9 elaborates on the case of leapfrogging into digital TV by Korean firms, by comparing with the Japanese lock-in with analogue-based high definition (HD) TV.