The Path to Development and Macroeconomic Stability in Korea
Chapter 3: Korean model of catch-up development: a “capability-based view”
Chapter 3 proposes a “capability-based view” on the Korean experience in catching-up development. This approach may be considered as an extension of the technology-based view but wants to keep a distance from the government–market dichotomy as it has a more sound microeconomic foundation. The reason we are taking this view is that the real lesson from the Korean achievement is not from the role of government in economic development but from the fact that it was able to build firms’ capability and thereby sustained growth for several decades. Sustained growth for several decades is not easy, and there are numerous cases where macro-based reform brought in immediate recovery but was not sustained, and eventually the economy fell into another round of crisis. The most fundamental factors for sustained development is whether to build local capabilities or not. We contend that without some critical degree of capabilities, growth which is based on lower wage rates or simple price competitiveness tends to be short-lived or not sustained. The discussion in this chapter suggests that the Korean economy had laid the basis for a transition from a middle- to high-income country by building up technological capabilities around the early to mid-1980s. The early to mid-1980s is when the R & D/GDP ratio surpassed 1%, the share of private R & D exceeded half to reach around 70%, and the share of corporate patents became larger than that by individual inventors. Based on these capabilities, Korea was able to make the transition from an upper-middle income to a high-income country. We argue that it is not more openings but capability building associated with tertiary education and private R & D that has made the transition possible. The final section of the chapter discusses the issue of the transferability of the Korean model, focusing on the role of the government, the possibility of state activism in the World Trade Organization environment, and the role of locally owned firms.
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