R&D Policies of Korea and Their Implications for Developing Countries

Abstract

The current article explains the research and development (R&D) policies of Korea that the Government pursued in the national innovation system to develop the technology level in the process of rapid economic growth. The efforts to build various research institutes, provide tax incentives and establish technology and science zones facilitated technology development in Korea. The article also shows the performances of the R&D policies, such as human resource development, patents and technology trade as consequences of these efforts. Finally, this article draws implications for developing countries from the experience of Korea regarding the role of the Government in promoting innovation and developing technology-intensive industries.

Introduction

KOREA HAS ACHIEVED phenomenal economic development during the past half century, transforming itself from an agricultural economy into a technology-intensive one. Korea was one of the poorest countries in the 1960s, but it rapidly learned, adapted and created the advanced technologies necessary for the successful transformation of the economy. The actors in this rapid economic development were mainly the Government, academia and private companies (Chung, 2002, p. 487). It was critical that the Government imported technology and funded research and development (R&D) consortia in the early stage of the economic development which paved the road for the industrial growth of Korea afterwards (Ahn and Mah, 2007, p. 377).

As explained in the endogenous economic growth models, R&D activities are critical to innovation, which leads to the development of technology-intensive industries and economic growth (Jones, 1995; Ulku, 2007). The management of interactions among the actors of R&D activities such as R&D-related departments, academia, public institutions and private companies, together with the analysis of R&D inputs and outputs, is referred to as the national innovation system (NIS) (OECD, 1997). In general, it consists of ‘all interrelated institutional actors that create, diffuse and exploit innovations’ (Chung, 2002, p. 486), whereby not only the active role of each independent institute is crucial but also the interaction among these institutes.

During the development of the NIS and economic growth, chaebols, i.e. the large conglomerates in Korea, emerged into the spotlight for Korean industrial growth (Kim, 1997; Lee and Lim, 2001; Wang and Tsai, 2010). Lee and Lim (2001, p. 471), for instance, extended the argument by stating that there was no structured government help except for the few trivial centres related to the industry. Nagano (2006, p. 665) contended that, while the Government’s effort in terms of R&D did exist, the actual achievement of flourishing production with increasing exports and commercialisation of Korean industry was due to the private firms’ R&D investment. Wang and Tsai (2010, p. 1415) asserted that the public research institutes played a relatively insignificant role.

Although it might be true that Korean chaebols played an important role in industrial development and afterwards, the Korean Government generated experienced researchers and established and maintained research institutes and centres even in the 1960s and 1970s, which was far before the private sector actors, such as chaebols, began to increase their own R&D expenditures in the 1980s (Kim, 1997, p. 202). Therefore, it is reasonable to divide the Korean NIS into two periods, that is, an earlier period from the 1960s to the early 1980s during which the Government was mainly in charge and the latter period starting from the 1990s when the private sector led (Kim, 1997; Park, 2000, Sohn and Kenney, 2007, p. 993). In the earlier stage, the Government set the foothold for the private sector to upgrade its technological capabilities by building up some necessary public research institutes and investing in education and R&D. In the latter period, the private companies, big firms like chaebols in particular, led the NIS. However, even during the latter period, the Government played its own part in solidifying the national R&D structure. The Government has continued to facilitate the relationship among the three main actors—government, universities and private firms—to achieve synergy from the investment—and provide firms in the technology-intensive industries with tax and financial incentives.

The current article explains the R&D policies of Korea that the Korean Government pursued to develop industries during the process of rapid economic growth and reveals how the Korean Government has utilised public institutes in the national R&D system along with its transformation of economic policies from the 1960s to the present. In addition, this article draws implications from the experience of Korea regarding the role of governments in promoting innovation and developing technology-intensive industries. The structure of the current article is as follows. The second section discusses the evolution of the R&D policies of Korea. The third section shows the concrete performances of the R&D policies implemented by the Government, including: R&D expenditure; researchers; patents; technology exports; and the establishment of science parks, that is, so-called innopolises, to develop indigenous technologies. The fourth section provides implications for developing countries pursuing the development of more value-added technology-intensive industries with R&D policies in the light of the experience of Korea. Conclusions are provided in the last section.

Evolution of Korea’s R&D Policies

Establishment of R&D-related Institutes

In the 1960s, as a country overcoming the aftermath of the Korean War, the Korean economy was based on labour-intensive, light industries, such as textiles and garments, taking advantage of cheap labour. Considering the lack of appropriate technology to make products, the Korean Government had to encourage turn-key capital imports along with technology learning from abroad, Japan in particular (Jang, 2011). Since the country was at the stage of taking off and lacked its own ability to create and develop new technology, the Government did not focus on indigenous innovation but rather supported private firms in acquiring, importing and absorbing foreign technologies (Sohn and Kenney, 2007, p. 993).

The Economic Planning Board (EPB) was established in 1961 to formulate, coordinate and implement the economic development plan. Its function was to establish and control economic policies, including the Five Year Economic Development Plan, which did not focus specifically on R&D. However, realising that R&D plays an important role in economic growth in the long run, the Government comprehended the necessity of systemised science and technology policies (Lim, 1999, p. 135). Therefore, it started to carry out pilot R&D programmes, establishing some key institutes that were to become the main actors of R&D in the future (Sohn and Kenney, 2007, p. 997). During the 1960s, the central role of the Government was to distribute the technologies imported from advanced countries. As Lee and Park (2006, p. 1049) showed, the Government’s R&D support in the early stage of development played a significant role in all the categories of innovation in the latter period. Such a role of the Government during the 1960s set the basis for private sectors to develop their own technologies starting from the middle of 1980s.

The Government established the Korea Institute of Science and Technology (KIST), the first multidisciplinary research institute in Korea, in 1966 and it began to operate in 1969. As the first public research institute, it played a leading role in the technological development of automobiles, electronics, machinery, shipbuilding, petroleum refinery, steel, nonferrous metal products and other export industries. It generated tens of spin-offs that provided state-of-the-art information and technologies to experienced R&D personnel as well as industries (Lee, Bae and Lee, 1991; KIST, www.kist.re.kr, accessed on 10 August 2012).

Moreover, the KIST constituted the centre of Korea’s national R&D system and acted as an infrastructural model by providing technological feasibility studies, especially for the heavy and chemical industries in the 1970s. Realising the limit of labour-intensive industries and considering the rising wage level, the Korean Government aggressively began to promote more value-added heavy and chemical industries from 1973. The aggressive promotion of the heavy and chemical industries continued until the end of the 1970s and the early 1980s (Mah, 2007). Some of the main industries promoted were iron and steel, machines, shipbuilding, electronics, petrochemicals and non-ferrous metals (Korea Industrial Technology Association, 1986, p. 213). Immediately after the establishment of the KIST, the Ministry of Science and Technology was established in 1967 (Lim, 1999, p. 135–139). Throughout this period, internalising imported technology and reverse engineering had been the main science and technology policy in Korea (Jang, 2011).

The Korean Advanced Institute of Science and Technology (KAIST) was established in 1971 and has educated many young and talented scientists. The KIST had performed R&D activities until the middle of 1970s but it seemed to be difficult for one institute alone to meet the massive future technology demand from the industries. Thus, the Government enacted a law promoting the establishment of specialised government-supported research institutes that could provide technologies to each specific industry in 1974¹ and established the public research institutes during the 1970s (Chamarik and Goonatilake, 1994). Some of the government-funded research institutes established and promoted after the law enacted are representatively, KAIST, Korea Institute of Nuclear Safety (KINS), Korea Ginseng & Tobacco Research Institute, Korea Institute of Industrial Technology Evaluation and Planning and others. Appendix shows the major laws relating to science and technology of Korea.

Table 1 shows the changing tendency of the budget allocation to and areas of research of KIST and KAIST. Although the R&D budget allocated to KIST was as small as .5 billion Korean won, it increased by 48 times to 22 billion Korean won in 1990. It increased rapidly during the 1990s in particular despite economic crisis in 1998. It reached 245 billion Korean won in 2011. The amount of R&D budget allocated to KAIST increased significantly as well from 90 billion Korean won in 2002 to 261 billion Korean won in 2011.

Table 1.

KIST and KAIST: R&D Budgets and Areas of Research

(Unit: million Korean won)

R&D budget	KIST	KAIST
1970	455	Established in 1971
1975	3,207	NA
1985	11,183	NA
1990	21,923	NA
1995	46,473	NA
2000	92,202	NA
2002	120,900	90,442
2005	140,517	106,150
2010	222,351	251,021
2011	245,152	261,301
Areas of Research	Brain Science, Biomedical Research, Multi-disciplinary Convergence of Materials, Green City Technology, Future Convergence Research, National Agenda Research	Energy, Health, Knowledge-based technology, Security

Sources: KIST, http://eng.kist.re.kr, accessed on 10 March 2013; KAIST, 2011 R&D Annual Report, http://www.kaist.edu/english/download/KAIST%202011%20Annual%20R&D%20Report_eng.pdf, accessed in March 2012.

Notes: R&D budget for institutional projects, government projects and private projects are included.

NA = not available.

To support various industries belonging to the heavy and chemical sector, the Government established the Korea Institute of Machinery and Materials, the Korea Institute of Chemical Research and the Korea Research Institute of Shipbuilding, among others, in the middle of 1970s (Lee, Bae and Lee, 1991; Daedeok Innopolis, 2012), which was just after the announcement of the Heavy and Chemical Industries Promotion Plan. Those public research institutes provided the heavy and chemical industries with technologies and enabled such industries to become leading Korean export industries a few decades later.

In the early stage of economic development, the Korean Government encouraged the importing of technology² from foreign countries considering that foreign direct investment (FDI) was not effective for learning and disseminating advanced technologies.³ Most Korean enterprises in the 1960s and 1970s were not able to accommodate FDI and the Government was protective of domestic industries desired to be developed for which the FDI on the industries was restricted (Yoon, 2006). In this respect, the Government enacted the Foreign Capital Inducement Act of Korea to limit the foreign capital inflows, while the demand for advanced foreign technologies was essential for development in the heavy and chemical industries (Chamarik and Goonatilake, 1994). It was in the late 1970s that the Government gradually liberalised technology and capital investment by slowly liberalising provisions of the Foreign Capital Inducement Act from foreign countries as it recognised that, for further economic growth, it was imperative to handover its technological learning to corresponding industries.⁴ Therefore, starting from the middle of 1970s, the Government tried to attract major foreign-invested enterprises to promote technological development providing special incentives to foreign firms to establish companies in Korea (Nagano, 2006, p. 654).

The Korean Government transformed its economic policy once again to become an advanced industrialised country developing high technology on its own during the 1980s. Korea’s R&D policy began to encourage the supply of endogenous technology by promoting research capabilities, expanding tax incentives for private and industrial R&D activities and increasing the amount of reserve funds for technology development (Yoon, 2006). Thus, assembly and processing industries such as electronics parts, computers, semiconductors, general machines and automobiles began to flourish during the 1980s (Korea Industrial Technology Association, 1986; Jang, 2011). The Korea Institute of Electronics Technology (KIET) was established in 1976 as an institute fully devoted to developing technologies related to the electronics industry. Operating with close consultation with private companies, KIET took part in all imported technology negotiations between Korean firms and foreign firms and accommodated itself to the need of the private sector (Kim, 1992).

Among the many institutes involved in the national R&D projects, the ETRI was established in 1985 as a result of a merger between the KIET and the Korea Electronic Technology and Telecommunications Research Institute (KETRI). It became an evident supporter of the electronics and telecommunication industries and has implemented many national projects since its establishment such as projects related to 8-bit computers, electronic telephone exchanger TDX-1,⁵ and 4M DRAM⁶ in 1986, CDMA⁷ in 1991, ATM⁸ in 1996 and DMB⁹ and WiBro¹⁰ in 2004 (Ahn and Mah, 2007, p. 368). The ETRI continued to develop new technologies to promote development in high-tech industries by developing a wireless home network in 2006 and 4G-LTE¹¹ advanced technology in 2010 (ETRI, 2012). In short, these government research institutes mostly initiated, planned and coordinated the targeted research by administering imported technology, facilitating licensing and managing foreign consultants for business enterprises as well as establishing human capital, thereby upgrading training and education to overcome bottlenecks in supply of skilled workers as industrialisation progressed (Kim, 1992).

The Government realised that the creation of indigenous and core technologies is the major factor in long-run economic development. Starting to change the science and technology policy by establishing the Korea Basic Science Institute in 1988 and the National Fusion Research Institute in 1995, the Korean NIS has systemised and globalised science and technology programmes since 1990s (Jang, 2011; Daedeok Innopolis, 2012). As a result of such efforts, the information and communication industries and knowledge-intensive technologies have flourished from the middle of 1990s.

Tax Incentives for R&D Activities

To reduce the R&D costs borne by private firms, the Government prepared a Reserve Fund for R&D in 1973, began to provide tax exemption and applied a special depreciation rate to purchases of R&D equipment in 1976. In the early 1980s, the Government began to place an emphasis on the private sector-led innovation system and the development of technology-intensive industries. In 1981, the Technology Development Promotion Law of 1972¹² was revised to encourage the establishment of small- and medium-sized enterprises (SMEs) and laboratories of big firms, which led to the rapid expansion of private R&D expenditure (Nagano, 2006, p. 654). Due to the tax and financial incentives, implementing the Law encouraged business enterprises to finance their own R&D activities independently and jointly with public research institutes (Kim, 1992). Not only the private R&D expenditure but also that of government-financed research institutes increased sharply due to two main national projects: the Government Projects and the Government-Industry Joint Projects (Chamarik and Goonatilake, 1994).

Beginning from the middle of 1980s, the private sector became the main actor in national innovation, while the Government transformed itself into a supporter of R&D activities and a bridge of actors in order to adapt to the changed international economic environment. First, Korea lost its competitiveness in low-wage-based labour-intensive industries as its real wage rose at an annual average growth rate of 5.8 per cent in the 1960s and 7.5 per cent in the 1970s. Second, developed countries such as Japan became increasingly reluctant to transfer technology to Korea as Korean companies attempted to enter industries that they dominated (Kim, 1997, pp. 33–34). Because of such changes in the global atmosphere, the Korean Government needed to set out a major economic policy shift, mainly opening towards the market mechanism rather than government intervention and development of the state-of-the-art technology-intensive industries.

Therefore, many types of tax benefits began to be provided in the 1980s, representing an attempt by the Government to transfer its leadership of technological development to private companies; for instance, the elimination of the upper limit to tax benefits on the Reserve Fund for R&D; tax exemption for R&D and training expenses; exemption of local real estate tax on buildings plus land or R&D institutes in 1981; reduction of import duties on R&D equipment in 1982; and tax credit on spending for human resource development in 1986. In addition to granting tax benefits for R&D activities, a general reduction in profit tax rates from the top rate of 40 per cent in 1980 to 30 per cent in 1988 also contributed to the private sector’s ability to stretch its wings (Kim, 1994, p. 98; IBP USA and USA International Business Publications, 2009).

Tax credit for investment in technology-related facilities and the development of human resources began to be provided in the 1990s. Meanwhile, due to the progress of globalisation during the 1990s with the inauguration of the WTO system, it was indispensable for the Government to pursue deregulation (Kim, 1997, p. 35). As a result, some of the tax incentive programmes practiced during the early industrialisation period were no longer allowed. Table 2 shows various types of tax incentives provided by the Government to promote R&D-related activities.

Table 2.

Tax Incentive System for Promotion of R&D-related Activities

Period	Promotion of technology transfer	Promotion of R&D commercialisation	Promotion of venture capital formation
1960s	Tax exemption or reduction on payments for technology imports
1970s	Tax exemption or reduction on income from R&D activities (1975)	Tax exemption and social depreciation rate for assets of newly commercialised technology (1973); Income tax exemption on engineering consulting services (1975)
1980s	Income tax exemption on foreign engineers and researchers (1980)	Special tax benefits for R&D based SMEs (1985)	Reserve fund system for investment losses of venture capital firms (1980); Exclusion of capital gains from taxable income for venture capital firms (1982)
1990s
2000s	Tax exemption is granted for patents for up to 50% of the income derived from rights transfers (2001)	Special excise tax exemption for samples for test research	Local tax exemption system for real estate for research institutes Tax deduction for facilities investments in research tests

Sources: Kim, Kyun (1994, p. 98); Sam-il Price Waterhouse Coopers (2012); IBP USA and USA International Business Publications (2009); Invest Korea (2012).

Note: Enacted years within parentheses.

During the 2000s, tax credit for the development of technology and manpower began to be provided. As of August 2012, some tax incentives are available regarding R&D and technology transfer. To name a few, there are tax exemption for income from technology transfer, tax incentives for newly established SMEs and tax credit for investment in facilities for technology and human resources development. To elaborate, companies purchasing patents or utility model rights are eligible for tax credit of up to 3 per cent (7 per cent in the case of SMEs) of the total price and 3 per cent of the amount of acquisition is exempt in the case of machinery, equipment, installation of an information management system at points of sale and information protection systems. As the Government has promoted SMEs ever since the 1970s, they have been provided with tax incentives, which include the reduction of income tax or profit tax for SMEs in areas outside Seoul by 50 per cent for 4 years from the year of establishment and the reduction of local taxes consisting of property tax reduction by 50 per cent for five years and registration and acquisition tax exemption for two years to promote balanced regional development (Ahn, 2010).

Establishment of Innopolises

The Government began to build the ‘Silicon Valley of Asia’ with the objective of establishing a science park,¹³ officially called by the government as an innopolis, which is a compound word combining ‘innovation’ and ‘polis’, meaning city. The project to build a science park started in 1979 when the Daedeok Administration Office of the Ministry of Science and Technology was established. In 1992, most of the infrastructure of the Daedeok Research Cluster came to be in place. The Daedeok Research Center Administration Law, including the Special Law on Fostering Venture Business was enacted in 1994 (Daedeok Innopolis, 2012). Table 3 shows the changing number of research institutes, universities and private companies housed in Daedeok Innopolis. The total number of institutions in Daedeok Innopolis increased from 742 in 2005 to 1,266 in 2010, that is, approximately a 70 per cent increase in just five years. The increase in the number of private companies together with the public research institutes and other non-profit institutes is noteworthy in particular. Although the Government constructed Daedeok Innopolis and established public research institutes within the zone, several years later private companies also began to establish their R&D wings and laboratories to benefit from collaboration with such public research institutes.

Table 3.

Institutions in Daedeok Innopolis

Year	Government institutes	Government-funded institutes	Non-government public institutes	Non-profit institutes	Education institutes	Private companies	Total
2005	21	10	12	6	6	687	742
2006	21	9	13	8	6	786	843
2007	28	7	15	23	6	898	977
2008	28	7	14	24	6	980	1,059
2009	29	8	14	27	5	1,006	1,089
2010	30	8	14	30	5	1,179	1,266

Source: The Innopolis Foundation (2012).

In 2011, innopolises in Gwangju and Daegu were additionally designated to stimulate the nationwide development of technological research and foster collaborations with neighbouring companies.¹⁴ These innopolises in major cities in Korea are expected to contribute to the balanced development of the nation together with innovation and the commercialisation of the available technologies. As it is shown in Tables 4 and 5, as of August 2012, 382 and 198 institutions including government agencies, public research institutes, universities and private companies are located in Gwangju and Daegu Innopolises, respectively (Gwangju Innopolis; Daegu Innopolis).

Table 4.

Institutions in Gwangju Innopolis > in 2012

Government agencies	3 (Human Resources Development Service of Korea Honam Headquarter, Human Resources Development Service of Korea Gwangju Headquarter, Honam Branch of Korea Productivity Center)
Research institutes	6 (Electronics and Telecommunications Research Institute, Korea Institute of Industrial Technology, Yeongsan River Water Environmental Institute, National Institute of Environmental Research, etc.)
Universities	4 (Chonnam National University, Gwangju Institute of School and Technology, etc.)
Non-profit corporations	7 (Korea Industry-University Cooperation Institute, Gwangju Design Center, Gwangju Technopark, etc.)
Private companies	362
Total	382

Source: Gwangju Innopolis (2012).

Table 5.

Institutions in Daegu Innopolis > in 2012

Government-public institutes	4 (Daegu Gyeongbuk Center of Electronics and Telecommunication Research Institute, Daegu Branch of Korea Machine Research Institute, Daegu Center of Korea Basic Science Institute, Technology Commercialization Headquarters in Daegu Gyeongbuk of KITECH)
Educational institutes	8 (Kyungbuk University, Daegu Gyeongbuk Institute of Science and Technology, Yeungnam University, etc.)
Non-profit corporation	9 (Mobile Convergence Commercialization Center, Bio-Health Convergence Center, Gyeongbuk Techno Park, Daegu Mechatronics & Materials Institute, etc.)
Private companies	177
Total	198

Source: Daegu Innopolis (2012).

Gwangju Innopolis and Daegu Innopolis comprise certain districts newly established, introducing institutes and compares as well as those, with the existing universities, public institutes and companies. Thus, the Korean Government has tried to link the NIS to the regional technology hubs. It assigns specialised technology to each innopolis, promoting the public research institutes and private companies related to those technologies to cluster and develop interactively. The Chungchong area where Daedeok Innopolis is located, develops new information technology (IT) such as mechatronics, high-tech components and battery technology, while the Honam area, the southwestern part of the Korean peninsula, where Gwangju Innopolis is nestled, promotes information appliances, automobile components and shipbuilding distributions. Green energy, herbal medicines and culture and tourism are the key industries in the Dae-kyung area, the southeastern part of Korea, focusing on Daegu Innopolis (Kim, 2011, p. 35). Through building a cooperative system between the national spoke and the regional hubs and specialising in technologies in each region, the Korean Government is initiating balanced technological distribution and economic development simultaneously.

Currently, the Korean Government is focusing on developing indigenous technology and promoting knowledge-intensive industries. With already-established institutes and innopolises, the Government is systemising its science and technology programmes to solidify the foundation of R&D activities carried out by public research institutes, universities and private companies. Recently, the exporting or globalising of Korea’s own technology has become the integral objective of the science and technology policy. Some of the technologies used in the industries developed in the 1990s and 2000s, such as electronics and telecommunication industries, are being exported to other developed as well as emerging countries (Jang, 2011).

R&D Promotion and Its Accomplishment

R&D Expenditure

The Korean Government has gradually increased its R&D expenditure since the beginning of industrialisation in the 1960s. Table 6 shows that R&D expenditure increased from 1.2 billion Korean won in 1963 to 10.5 billion Korean won in 1970. From 1970 to 1980, it grew from 10.5 billion Korean won to 211.7 billion Korean won, which is approximately a 19-fold increase in only a decade. Such an increase reflects the effort of the Government to establish various research institutes and support the Heavy and Chemical Industries Promotion Plan during the 1970s. Meanwhile, the ratio of R&D expenditure/GDP was as low as 0.58 per cent in 1980.

Table 6.

R&D Expenditure/GDP

Year	R&D expenditure (billion won)	Public sector R&D expenditure/GDP (%)	Private sector R&D expenditure/GDP (%)	R&D expenditure/GDP (per cent)
1963	1.2	NA	NA	NA
1970	10.5	NA	NA	NA
1976	60.9	NA	NA	0.44
1980	211.7	0.30	0.28	0.58
1985	1,155.2	0.31	1.28	1.59
1990	3,349.9	0.36	1.51	1.87
1995	9,440.6	0.47	2.03	2.50
2000	13,848.5	0.66	1.73	2.39
2005	24,155.4	0.68	2.11	2.79
2010	43,854.9	0.94	2.80	3.74

Source: Ministry of Education, Science and Technology (MEST), various issues.

Note: NA = not available.

As the attention of the industrial policy of Korea changed from one that targeted the promotion of certain sectors, that is, heavy and chemical industries, to R&D promotion that did not target specific industries directly in the early to middle of 1980s (Mah, 2007), the R&D expenditure jumped during the transition period of the NIS of Korea. It increased from 212 billion Korean won in 1980 to 3.4 trillion Korean won in 1990. That is, the amount of R&D expenditure increased by 16 times and the R&D expenditure/GDP ratio more than tripled to 1.87 per cent during the 1980s. In 2008, Korea’s R&D expenditure as a share of GDP, 3.36 per cent, was the fourth highest and much higher than the OECD members’ average of 2.33 per cent. It can be compared with that of the US, 2.79 per cent and the EU, 1.90 per cent, which indicates that Korea allocates a larger amount to R&D activities relative to the other major developed countries (OECD, 2011b). R&D expenditure accounted for 3.74 per cent of the total GDP in 2010.

Even though the R&D expenditure has grown rapidly since the economic reform in the 1960s, its composition regarding the public and private sectors has changed significantly during the period. According to Table 6, public sector R&D expenditure/GDP amounted to 0.30 per cent and 0.28 per cent, respectively, in 1980. The former tripled to 0.94 per cent in 2010. Meanwhile, the latter increased by 10 times to 2.80 per cent in the same year. Therefore, although the share of the public sector was more or less the same as that of the private sector in 1980, the latter apparently dominates the former currently.

The Government led the NIS until the end of the 1970s, as shown in Table 7. Due to the expansion of the private sector in R&D activities in the 1980s, the share of the Government apparently decreased in the early 1980s to lower than 20 per cent since 1985. The pattern of the proportion of the R&D expenditure borne by the public and the private sector has not changed since then. During and immediately after the Asian financial crisis, the amount of the R&D expenditure borne by the private sector decreased, while that of the public sector increased. Consequently, the proportion of the latter increased slightly to 28 per cent in 2000. That is, although the private sector decided to reduce its R&D expenditure by more than 10 per cent in 1998 due to the critical situation during the financial crisis, the public sector complemented and continued to promote R&D activities. During the 2000s, the share of R&D expenditure accounted for by the public sector remained between 24 per cent and 29 per cent. Throughout the period since the 1970s, the government laid the foundation of enhancing the science and technology capacity. With economic development, the private sector has led R&D activities in general.

Table 7.

R&D Expenditure by Sector

Year	Total (billion won)	Public sector (billion won)	Private sector (billion won)	Public: Private (per cent)
1976	60.9	39.5	21.4	65 : 35
1980	211.7	109.2	102.4	52 : 48
1985	1,155.2	224.9	930.3	19 : 81
1990	3,349.9	651.0	2,698.9	19 : 81
1995	9,440.6	1,780.9	7,659.7	19 : 81
2000	13,848.5	3,816.9	10,031.7	28 : 72
2005	24,155.4	5,877.2	18,278.2	24 : 76
2009	37,928.5	10,999.3	26,929.2	29 : 71

Source: MEST, various issues.

Figure 1 shows the changing composition of R&D expenditure by the main actors, that is Government, business and universities. Public research institutes include government-funded research institutes, medical institutes and other non-profit organizations. Both public universities and private universities are included in the category of universities, while private firms are designated as business. From the middle of 1970s the Government realised that it was necessary to transfer its leadership in R&D to private companies to achieve further economic growth (Chamarik and Goonatilake, 1994). During the transition period in the 1980s, therefore, the proportion of public research institutes decreased significantly, as the expenditure borne by business soared. That is, although R&D expenditure by the public research institutes increased by 9 times from 1976 to 1986, that by business increased by as much as 79 times during the same period.

FIGURE 1

Source: MEST, various issues, modified by the authors.

Figure 2 shows that the absolute amount of the government budget allocated to R&D has also increased since 1976, except for the period of the economic crisis in the late 1990s and a few years in the late 2000s. Korea’s R&D budget shared 1.02 per cent of the GDP in 2010, while the ratio was 0.75 per cent for the OECD countries in general in 2009, 1.18 per cent in the United States in 2009, 0.74 per cent in the case of Japan in 2010 and 0.67 per cent for 27 countries in the European Union in 2008 (OECD, 2011b). Thus, the Korean Government spends a relatively greater proportion of its budget on R&D than most of the other developed countries.

FIGURE 2

Source: OECD (2010).

Patents

Inputs into R&D activities, such as the amount of R&D expenditure, began to kick off in the 1970s and have gradually increased since then. Such R&D activities started to lead innovations during the 1990s. During the 1990s, the number of patents increased significantly. Table 8 shows that the number of patents issued by the US Patent and Trademark Office (USPTO) increased from 236 in 1990 to more than 3,000 in 1998, that is, an increase of about 13 times. Between 1998 and 2011, it quadrupled to almost 13,000. The rapid increase in the number of patent applications suggests the improvement of Korea’s capability to develop core and indigenous technologies. Table 9 shows that according to the number of patents filed with the World Intellectual Property Organization (WIPO), Korea ranked fifth, following the United States, Japan, Germany and China. Such data indicate that there are active R&D activities and innovations taking place in Korea and that the technology level has improved.

Table 8.

Number of Patents Issued to Koreans by the USPTO

Year	Number of patents issued (unit: case)
1990	236
1994	941
1998	3,052
2002	3,755
2006	5,835
2010	11,811
2011	12,858

Source: USPTO, various issues.

Table 9.

Number of Patents Filed to WIPO in 2010

	USA	Japan	Germany	China	Korea
Number (unit: case)	44,975	32,148	17,568	12,296	9,669
Ranking	1	2	3	4	5

Source: National Science and Technology Commission, 2011.

Human Resources

R&D expenditure is not the only factor that has expanded with economic growth. Investment in human resources has also skyrocketed, producing many researchers and intellectuals. Benhabib and Spiegel (1994) showed that the level of initial human capital stock is positively correlated with subsequent accumulation of the physical capital through the analysis of cross-country data along with the evidence that the growth rate of total factor productivity is affected by human capital stock of a nation. In addition, Borensztein, DeGregorio and Lee (1995) argued that human capital is an important factor for developing countries to achieve technological progress, as it plays a significant role in managing and adopting technology inflows from the developed countries. To achieve better nation building and economic growth, therefore, raising more educated people seemed to be crucial (Barro and Lee, 2001; Kuznets, 1973, 1981). In Korea, the Education Law was enacted in 1949, making primary education compulsory and its tuition free with an increasing budget allocated to education after the Korean War (Lim, 1999, p. 49). In addition, middle school education became compulsory in 1985 and gradually expanded to all middle school students in Korea by 2004. Currently, Korea shows one of the highest percentages of the population attending colleges (OECD, 2011a).

Apart from encouraging higher education, building human resource through vocational training programme has also been a part of the effort of the government. As a country pursuing export-oriented industrialisation, the Government took several human resource management programmes from vocational training to secondary technical schools in the 1960s and 1970s. In particular, the Vocational Training Law enacted in 1967 allowed the government to build 26 public vocational training institutes from none before and educated more than 350,000 people who shared about 3 per cent of the whole labour force in 1986. Granting subsidies to private firms relating to in-plant training programmes facilitated the implementation of necessary skills specific to each industry. In the 1980s, two-year junior technical colleges and four-year universities to educate skilled workers and technicians have increased in order to supply the labour force necessary for the technology-intensive industries (Kim, 1997, pp. 60–67; Lee, 1997).

The Government established the KAIST in 1971 with full financial support for its operational budget to produce masters and PhD holders in science and engineering (Lim, 1999, p. 69). Many young male scientists and engineers have been given the privilege of exemption from military service duty, which lasts up to two years (Mah, 2007). Various kinds of scholarship opportunities have also been provided to college and graduate students to attract talented students to the science and engineering field. With the effort of the Government, the number of researchers has grown consistently.

Table 10.

Number of Researchers

Year	FTE^a researchers	Researchers per 1,000 population
1976	11,661	0.33
1980	18,434	0.48
1985	39,043	0.95
1990	65,468	1.53
1995	100,456	2.24
2000	108,370	2.45
2005	179,812	3.72
2009	244,077	5.01
2010	264,118	NA

Source: MEST, various issues.

Notes: ^aFTE (full time equivalent), unlike the headcount, takes into account the amount of the researchers’ actual participation in research activities. The number shows only the number of researchers excluding administrative employees and other assistant engineers and technicians.

NA = not available.

According to Table 10, the number of researchers has increased from fewer than 12,000 in 1976 to more than 100,000 in 1995 and then to 264,118 in 2010. Most of them have a master or PhD degree in Korea. In 1976, when the Government started to establish research institutes, the number of researchers per 1,000 population was only 0.33. It increased to 1.53 in 1990 and then to 5.01 in 2009. Such an increase in the number of researchers in science and engineering has enabled innovation and technological progress for the past decades. There are on average about 7.6 researchers per 1,000 economically active populations for the OECD members in 2009, while there are 10 researchers per 1,000 employees in Korea (OECD, 2011b). This shows that Korea has succeeded in educating scientists and engineers.

Technology Trade Balance

Despite the achievements and rapid progress in R&D, Korea has a long road ahead in terms of technology trade, as Korea has faced deficits in this in every industry. Although its size has increased, the amount of technology trade of Korea has still been far lower than that of other developed countries, such as the US, Germany and Japan. The amount of technology trade of Korea in 2008 compared with those countries was 1/17.8, 1/11.8 and 1/3.3, respectively (OECD, 2008 and 2010).

The technology trade deficits continued to increase in absolute values from US$2 billion in 2001 to near US$5 billion in 2009. This implies that even as of 2009, Korea did not have a comparative advantage in innovation and technology-intensive industries in general. The industry showing the largest amount of deficits in technology trade is electronics, although it records the largest amount of technology exports, 68.5 per cent of all technology export. For instance, it accounted for about half of the total technology trade deficits of Korea throughout the 2000s. The machinery industry is the second-largest exporter of technology, with a share of 20 per cent. Even though the electronics industry has led technology exports, it imports a large amount of technology from foreign countries, accounting for 58.4 per cent of the total technology imports in 2009, for instance (OECD, 2008 and 2010). Even if the export values of the electronics industry are substantial relative to those of the other industries, the absolute amount of technology exports lags behind that of technology imports.

Besides technology trade per se, the direction of R&D policies of Korea can be related to export of technology-intensive products. R&D policies of Korea have actually contributed to development of technology-intensive industries of Korea since the middle of 1980s. IT industry developed in this manner began to lead Korea’s exports since the 1990s. For instance, together with automobiles, IT products such as semi-conductors, liquid crystal displays (LCDs) and mobile handsets lead Korea’s exports nowadays.

Lessons for Developing Countries

Since the beginning of industrialisation, the R&D promotion efforts of the Korean Government have been accompanied by remarkable economic growth. As a country that has experienced dramatic economic success and has changed from one that was highly dependent on labour-intensive industries with almost no production facilities immediately after the Korean war in the early 1960s into one of the leading countries in capital- and technology-intensive industries, the experience of Korea can provide some meaningful lessons for developing countries that are pursuing R&D promotion policies and economic growth in general.

First, the Korean Government has regarded human resources as a crucial factor in R&D. This is consistent with the endogenous economic growth theory by Romer (1990), Grossman and Helpman (1991), Aghion and Howitt (1992) and others, which states that an increase in the level of resources devoted to R&D will increase the growth rate of the economy. Without essential natural resources or a cutting-edge technology level for economic development, the Korean Government realised that it was imperative to foster many intelligent engineers and scientists. In this respect, it established science and technology-specialised academic institutions such as the KAIST in 1971, the Gwangju Institute of Science and Technology in 1993 and the DaeguGyeongbuk Institute of Science and Technology in 2003. For example, the KAIST was founded under government funding and initially staffed by a number of Korean engineering and science faculty educated in advanced countries, mainly the United States. These returning scholars led to the current technological development of Korea. Therefore, establishing the science and engineering-specialised academic institutions and attracting able scientists and engineers to build the foundation of the R&D system are essential to developing countries that are pursuing technology-based economic development.

Second, the Korean Government not only educated young scientists and attracted scholars from abroad, but also established many research institutes in which scientists and engineers could further research and implement R&D policies. Beginning with the KIST in the early stage of economic development, the Korean Government has founded research institutes developing advanced, indigenous technologies and collaborating with the other actors in R&D. Developing countries also need to build specialised research institutes devoted to analysing and implementing R&D activities to achieve technological development effectively. Also, as was the case in Korea, industry-specific research institutes need to be established to target the development of the industries. As it is shown in the Korean history of establishing and promoting research institutes like KIST and KAIST for more than two decades to create science and technology capacities in technology transfer to industries, human resource and collaboration among economic actors, there is no short-cut in developing indigenous science and technology capacities of developing countries.

Third, efficient collaboration between the Government and the private sector is also crucial. In developed countries, in general, the private sector bears a larger proportion of R&D expenditure. Therefore, establishing public research institutes would not guarantee sustained R&D activities. Rather, public research institutes need to assist the private sector, which is what the Korean Government undertook in the latter period of the NIS. During the early stage, it is necessary for the government to initiate technological development, while in the latter stage, the government needs to work as a bridge between private sectors, between universities and business and between public and private institutes to enhance the NIS.

Fourth, financial benefits, such as tax incentives for R&D activities, are necessary to encourage institutes and firms to take risks and invest in R&D. The Korean Government provided tax benefits in the 1970s to 1980s in particular to develop value-added capital-intensive industries. It also granted tax incentives to technology-intensive industries in the 1990s to 2000s. In order to provide incentives for firms, SMEs in particular, to take the risk of investing in R&D activities, it was necessary for the Government to step forward to let them initiate the business at the beginning. Some critics have argued that the Korean Government was too protective and less market-oriented during the period of rapid economic growth; however, the economic development of Korea shows the significance of providing appropriate incentives to encourage R&D activities. As the Government has provided incentives to the private sector, the latter has pursued R&D activities actively and greater synergy has been achieved through active cooperation between the Government and the private sector.

In this respect, fifth, the construction of innopolises provides another important lesson for developing countries. The Korean innopolis project targets two things: cooperation among public research institutes, universities and private firms and balanced economic and technological development across the nation. To reduce the regional inequality problems and enhance economic growth in the process of promoting R&D activities, developing countries may consider projects like building science parks or technology development zones similar to the innopolises in Korea to develop indigenous technology and facilitate the communication among the actors in R&D.

Last but not least, it is necessary for developing countries to understand the changing comparative advantage and direct the attention of R&D policies one step ahead. With cheap labour in the 1960s, the Korean Government developed labour-intensive industry. However, as the Korean economy became inferior to China and some South-east Asian countries in terms of the wage level (Lim, 1999, p. 102), the Korean Government quickly changed its industrial policy to promote the heavy and chemical industries by importing technologies from advanced countries. To support its development, the Government established related research institutes in the 1970s. Reflecting the transition of the industrial structure to technology-intensive industries, during the 1980s, the Korean Government shifted the focus of its industrial policy from sector-oriented to R&D-oriented support (Mah, 2007). Therefore, initiating and executing proper public policies on science and technology including laws and implementation mechanisms fitting the social environment is also a meaningful lesson that developing countries need to work on. Even if Korea faces a long road ahead with respect to technological development, its R&D system has successfully transformed from imitation to innovation. Therefore, it would be helpful for developing countries’ R&D policies to find ways to develop value-added technology-intensive industries.

Conclusion

In-house R&D institutes in private companies started to be established in the middle of 1980s when they were committed to upgrading their own productivity and bargaining power in technology transactions (Lim, 1999). The reason that chaebols and certain SMEs could set up their own private R&D institutes was that the Government had laid the foundation for R&D promotion since the 1960s. The research institutes established and tax incentives given to the firms by the Government paved the way for firms to innovate their own R&D activities when they faced globalisation, such as the inauguration of the WTO system protecting intellectual property rights.

In the second half of the NIS, during which the Government has functioned as a supporter of private companies, the Government established nation-wide research institutes to achieve balanced development and tried to link them to universities and private companies, expecting greater synergy in industrial development. As Chung (2002) and Lee and Park (2006) argued, collaborative R&D among downstream firms, universities and the Government improves the chance of success and the Government can act as a bridge among these R&D actors. In the meantime, it would be necessary for the Government to establish a more concrete science and technology policy to find the crossing point and prompt the active exchange among the actors.

As a country overcoming a situation of devastation after the Korean War, Korea can act as a guide for many developing countries in terms of R&D promotion and economic development. Without natural resources or appropriate social infrastructure, the Korean Government first generated skillful and intelligent human resources through building up science- and technology-specific academic institutions and providing incentives for young and talented students to major in science and engineering. In addition, it established tens of public research institutes from the early stage of R&D promotion.

Establishing public research institutes and attracting the attention of the private sector to develop its own R&D activities by the provision of tax and financial incentives have played an essential role in leading the country towards becoming a technologically advanced economy. Along with the development of both public and private research initiatives, the Government has actively built collaborative programmes whereby the actors in R&D can produce synergy by working together. As part of the effort, it has constructed nation-wide innopolises promoting cooperation among academia, public research institutes and private companies. Through such active policy measures of the Government and foresight regarding the changing comparative advantage in the global R&D environment, Korea has been catching up with the advanced technology level of the major developed countries.

The experience of R&D promotion policies of Korea provides many policy implications for developing countries. First, establishing science and engineering-specialised academic institutes is critical for developing countries in building the foundation for an R&D system. Second, developing countries need to build specialised research institutes devoted to analysing and implementing R&D activities. In Korea, the public research institutes were established and maintained for over two decades to create science and technology capacities. Thus, there is no short cut to endogenous science and technology capacities. Third, it is necessary for the government to initiate technological development, while in the latter stage of development, it needs to work as a bridge between private sectors, between universities and firms and between public and private institutes. Fourth, the experience of Korea shows the significance of providing appropriate incentives to encourage R&D activities in the private sector. Fifth, developing countries may consider projects like building science parks to develop indigenous technology and facilitate the communication among R&D actors. Finally, it would be helpful for developing countries to find ways to develop value-added technology-intensive industries via R&D promotion policies. In this process, it is also necessary to prepare and implement the laws enabling such policies.

Footnotes

Acknowledgements

The authors would like to express their sincere thanks to the journal editor Prof. V.V. Krishna for very helpful comments on the earlier version of this article.

APPENDIX 1

Main Laws Relating to Science and Technology

Year of the initial enactment	Law (purposes)
1966	Foreign Capital Inducement Act (regulating inflows of foreign capital)
1967	Science and Technology Promotion Act (establishing and implementing foundation of basic science technology policy and plan)
1967	Vocational Training Law (building and maintaining vocational training institutes)
1972	Legislation on Jurisdiction of Ministry of Education and Culture^aon Establishing and Supervising Non-Profit Corporation (managing non-profit corporation regarding education or science technology)
1972	Technology Development Promotion Law (provision of financial and tax incentives to encourage technology development)
1973	Technical Services Support Act^b (promoting businesses applying science technology knowledge)
1973	Support of Specific Research Institutes Act (development and maintenance of pubic research institutes)
1993	Daedeok Innopolis Management Act (establishment and maintenance of Daedeok Innopolis)
2000	Act on the Promotion of Specific Education for Brilliant Children (educating potentially talented children in primary and secondary institutes)
2001	Framework Act on Science and Technology (establishing foundation on science and technology policy)
2001	Regulations on Management of National Research and Development Projects (innovation on science technology to enhance national competitiveness)
2005	Special Act on the Support of Daedeok Innopolis (establishing and supporting innopolises as a whole)
2006	Act on Promotion of Mutual Cooperation between Large and Medium-Sized Businesses (establishing firm mutual relationship between large and medium-sized businesses alleviating polarisation and enhancing their competitiveness)

Sources: Ministry of Science and Technology, ‘Organizational Framework and Legal Framework’, http://park.org/Korea/Pavilions/PublicPavilions/Government/most/intro.html (accessed on 14 March 2013).

Korea Ministry of Government Legislation, http://www.law.go.kr/main.html (accessed on 14 March 2013).

Notes: ^aIts name was changed to the Ministry of Education and Science Technology (MEST).

^b Title of the Act was changed to Engineering Technology Promotion Act in 1992 and Engineering Industries Promotion Act in 2010.

NOTES

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