The Korean Economy in Transition
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The Korean Economy in Transition

An Institutional Perspective

O. Yul Kwon

This informative book provides a comprehensive examination of the dynamics of institutional reform and the transition of the South Korean economy. The analysis, based on an institutional approach, stretches over three decades of remarkable economic success under a state-led system, through the 1997 financial crisis, to the current market-oriented system.
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Chapter 4: The Korean Economy: Transition to a Knowledge-based Economy

O. Yul Kwon


4.1 INTRODUCTION Another facet of the transition of the Korean economy is its development toward a knowledge-based economy (KBE), which this chapter examines. Caught between rapidly developing, export-oriented neighbouring countries, and in particular China and the technologically advanced countries of the West, as well as Japan, Korea has been forced to replace the export-led industrialization strategy of its past and seek a new strategy for economic growth. Another important imperative for Korea's move to a KBE is its demographic decline and rapid population ageirtg, which will quickly erode Korea's traditional comparative advantage in high-quality, low-cost workers. Recognizing both the increasing importance of knowledge-based industries and the structural weaknesses of the Korean economy, the government released in January 2000 a proposal for a three-year plan to serve as a blueprint for Korea's transformation into a KBE (Pai et al. 2003). Since then, Korea has been active in promoting various aspects of the KBE, whilst not neglecting others (Dahlman and Andersson 2000: 31). Yuen and Griffy-Brown (2001) argue that economic growth in advanced countries is now predicated on the success of a knowledge-based economic development strategy and point out that knowledge-based sectors have been attracting high resources in all leading OECD economies. The OECD (1996: 9) estimated that more than half of GDP in the advanced OECD economies is knowledge-based. In this, Korea is not an exception. For instance, Korea's R&D as a percentage of its GDP was 3 per cent in 2005, the fifth-highest among OECD countries, compared to an...

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