Suh J., Chen D.H.C. Korea as a knowledge economy: evolutionary process and lessons learned

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WBI DEVELOPMENT STUDIES

Korea as a Knowledge Economy

Evolutionary Process and Lessons Learned

Edited by

Joonghae Suh

Derek H. C. Chen

The World Bank

Washington, DC

Korea Development Institute

and

The World Bank Institute

The World Bank

1818 H Street NW, Washington, DC 20433

Telephone: 202-473-1000

Internet: www.worldbank.org

E-mail: feedback@worldbank.org

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This volume is a product of the staff of the International Bank for Reconstruction and Development /

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Library of Congress Cataloging in Publication Data

Korea as a knowledge economy : evolutionary process and lessons learned / edited by Joonghae Suh,

Derek H. C. Chen.

p. cm. — (WBI development studies)

Includes bibliographical references and index.

ISBN 978-0-8213-7201-2 — ISBN 978-0-8213-7202-9 (electronic)

1. High technology industries—Korea (South). 2. Knowledge management—Korea (South). 3. Korea

(South)—Economic policy—1960– I. Suh, Joonghae. II. Chen, Derek Hung Chiat.

HC470.H53K67 2005

330.95195—dc22 2007022259

ISBN13: 978-0-8213-7201-2

e-ISBN13: 978-0-8213-7202-9

Contents

Foreword v

Acknowledgments vii

Abbreviations ix

1. Introduction 1

Derek H. C. Chen and Joonghae Suh

2. Overview of Korea’s Development Process until 1997 17

Joonghae Suh

3. The Challenges for Korea’s Development Strategies 47

Cheonsik Woo and Joonghae Suh

4. Designing a New Economic Framework 53

Siwook Lee, Wonhyuk Lim, Joonghae Suh, and Moon Joong Tcha

5. Information and Communication Technologies for a

Knowledge-Based Economy 79

Dongpyo Hong, Sangwon Ko, and Alexey Volynets

6. Meeting Skill and Human Resource Requirements 107

Anna Kim and Byung-Shik Rhee

7. Harnessing the Potential of Science and Technology 135

Sungchul Chung and Joonghae Suh

8. Assessment and Lessons 167

Jean-Eric Aubert and Joonghae Suh

References 181

iii

Foreword

The Republic of Korea has been experiencing rapid, and more importantly, sus-

tained economic growth since the 1960s. This has resulted in its real GDP per

capita increasing rapidly enabling the once low-income country to join the ranks

of high-income industrialized nations within a short time span of four and a half

decades. Moreover, the majority of this growth can be attributed to knowledge

accumulation, rather than to the accumulation of traditional factors of produc-

tion of capital and labor. Korea had achieved this knowledge-based growth by

investing heavily in education and training, boosting innovation through inten-

sive research and development, and developing a modern and accessible infor-

mation infrastructure, all coupled with a stable economic and conducive

institutional regime that enabled the knowledge-related investments to flourish.

Due to this, Korea has ably made its transition to a knowledge economy, that is,

an economy that uses knowledge as the key engine of growth. Its successful

knowledge-based development experience offers many valuable lessons for

developing economies.

Korea as a Knowledge Economy: Evolutionary Process and Lesson Learned has

been jointly produced by the Korea Development Institute and the Knowledge

for Development (K4D) Program of the World Bank Institute. It is a follow-up to

the joint World Bank Institute-OECD report on Korea and the Knowledge-Based

Economy: Making the Transition (2000) that was produced at the request of the

Government of Korea. This first report, which targeted Korean policy makers in

the main, looked at the Korean economy just after the 1997 financial crisis. It

focused on providing knowledge-economy related policy recommendations to

overcome the crisis and to prevent the reoccurrence of a similar economic

downturn.

In contrast, this new report on Korea is geared towards policy makers from

developing countries that are in the midst of, or are intending to, embark on the

transition towards the knowledge economy. It provides pragmatic policy les-

sons drawn from Korea’s forty-five years of knowledge-based growth. This

report not only looks at the current policies and challenges of today’s high-

income Korea, but also reviews its historical economic development since the

1960s when Korea was still a low income country. It follows Korea through the

decades as it undertook an array of knowledge strategies that propelled it

through the various income levels. The report therefore provides compelling

policy lessons that are relevant for developing countries at different stages of

economic development.

Jung Taik Hyun Frannie Léautier

President Vice President and Head

Korea Development Institute World Bank Institute

vi Korea as a Knowledge Economy

Acknowledgments

This report was jointly developed by the Korea Development Institute (KDI) and

the Knowledge Development (K4D) Program of the World Bank Institute (WBI). It

was funded mainly by the World Bank Trust Fund for the Korea Knowledge Part-

nership Program on Sharing Knowledge for Development, sponsored by the

Korean Ministry of Planning and Budget. The team of Korean authors was headed

by Dr. Joonghae Suh (KDI) and consists of Dr. Cheonsik Woo, Dr. Siwook Lee, Dr.

Wonhyuk Lim, and Dr. Moon Joong Tcha of KDI; Dr. Dong-pyo Hong and Dr. Sang-

won Ko of the Korea Information Strategy Development Institute (KISDI); Profes-

sor Anna Kim of Ewha Womans University; Dr. Byung-Shik Rhee of the Korea

Educational Development Institute (KEDI); and Dr. Sungchul Chung of the Science

and Technology Policy Institute (STEPI). The K4D team for the report was headed

by Dr. Derek H. C. Chen and includes Dr. Jean-Eric Aubert, Mr. Alexey Volynets,

and Mr. Do-Geol Ahn.

Dr. Carl Dahlman, former K4D Program Manager at WBI and currently profes-

sor at Georgetown University, initiated the project and Dr. Hong-taek Chun, former

Vice President of KDI, supported the initiative by arranging for additional

resources. Mr. Il Whan An, who had served as a Senior Public Policy Specialist at

WBI as a secondee from the Korean Ministry of Planning and Budget, made sub-

stantial contributions including valuable comments and suggestions, in addition to

undertaking extensive coordination between K4D and KDI.

In addition to the authors, many other Korean scholars contributed to this

report. Among them, we would like to thank Professor Inho Lee at Seoul National

University for his brief note on Korea’s venture business policy and Professor Joon-

Mo Yang at Yonsei University on Korea’s industrial policy. Dr. Yong-Kook Joo and

Dr. Young-Sun Ra at Korea Research Institute for Vocational Education and Train-

ing provided data and materials on Korea’s lifelong education. Dr. Young-Sub

Kwon at Korea Research Institute for Human Settlements kindly provided figure

7.8 of the report.

Earlier drafts of the report were reviewed by several outside readers. Valuable

comments were received from two external reviewers, Professor Michael Hobday

and Dr. Dieter Ernst, and from participants in knowledge economy workshops held

in Korea (Seoul), Russia (Mosow), and Chile (Santiago).

We are grateful to Ms. Suyeon Jeon at KDI for her able research assistance, to Ms.

Eun-Hee Jeong and Mr. Jin Park at KDI School for their administrative assistance

vii

for several knowledge economy workshops in Seoul, and to Ms. Minjung Lee at

IGN Design Co for creating the cover design. We thank to Ms. Faythe Calandra of

K4D for her tireless administrative contributions to the development of this report

and the entire portfolio of Korean activities at the K4D Program. This report and the

accompanying Overview was edited and typeset by Grammarians, Inc. Lastly, we

would like to acknowledge our appreciation to Mr. John Didier of WBI for shep-

herding this report through the publication process.

viii Korea as a Knowledge Economy