1. Introducing Economics of Catch-up: Catching-up at three dimensions Keun Lee, SNU ( (

2. What is catch-up? By the late-comers with the forerunners 1) country: per capita income, shares in world markets, number of global fortune ) firms: market shares, producitity, sale growth => Rise and Decline of nations 2 2

3. World-wide Inequality Rising
남미LA
중동Mid East
아프리카Africa
Asia아시아

4. More inequality by inter-country than intra-country

5. One cause of current global crisis = under catchup (inequality) Correcting Global Imbalance by hard landing (American over-consumption = Chinese oversavving/under consumption) Classical Capitalism = supply > demand (over production = under consumption: Marx) Contemporary capitalism = global under consumption but with American over-consumption + Chinese under consumption Surplus in the Rich countries: OEM production of cheap consumer goods:-> profits by rich country firms, royalty income 5 5

6. What is economics of catch-up all about?
What kinds of economics in Korea and How to do it?
* Most important economics issue in the world
= also most exciting and challenging issue
= economic gaps among the nations
( Latin America, Africa)
-End of History (Fukuyama)-> End of Poverty (Sachs)?
* Wrong vs. Right Economics
Need a critique of the main stream economics
b/c assume the situations in the rich or advanced economies
* Moral duties and also advantages of Korean economy and economists: To develop and sell economics of catch-up

7. International Projects on Catch-up led by Richard Nelson at Columbia (Jeffrey Sachs, Earth Institute) 1) SSI (Sectoral Innovation. System) and catch-up (led by Franco Malerba), 2) IPR ( 지재권) and catch-up (Hiro Odagiri and Sunami), 3) Firm Capability and Catch-up (John Cantwell, Ed Amann and Martin Bell) 4) University-Ind. Linkages and Catch-up (Keun Lee, Eduardo A. and Glenda). 5) Inequality and catchup; macroecomics and catchup They meet at the Globelics ( ;

8. 3 questions: Korean context
What is the cause of rapid growth in Korea? Policies vs. institutions
Why Samsungg ( IT) catching up with Sony more successfully than Hyundai with Toyota
3) Chaebols, engine of success or culprit of crisis?

9. Generalizing the three Q’s in the World Context
What determines long run economic growth? (institution, policies, geography)
2) Why catch-up more or less difficult across sectors?
3) Business groups, an inferior forms of firms, to the Anglo-Saxon style with no owners?
Catch-up at the 3 levels:
Country, sectors and firms (individuals)

10. 1st Q: Recent Debates on Long Run Economic Growth
Institution vs. Policies vs. Geography
1) Not policies but Institutions matter:
Reversal of fortunes by colonizers
(Acemoglu, Johnson & Robinson 2001, 2002; Rodrik et al 2004)
Institution as a savior of the Washington Consensus
2) Geography matter: A destiny? ( J. Sachs)
3) Does institution matter? -> Human capital
( Glaeser, La Porta, Lopez-de-Silanes & Shleifer, 2004)
 한국인의 생각은?

16. Table 4 Number of Utility Patent Applications Filed in the United States
(By Country of Origin)
Country
1980
1981
1985
1988
1990
1993
1995
1998
2000
2002
2003
Korea 33 64
129
295
775
1,624
2,820
5,452
5,705
7,937
10,411
Taiwan
367
394
760
1,246
2,035
2,874
4,054
7,412
9,046
12,488
13,786
China 7 10 24
122
111
135
144
181
469
888
1,034
average of 9 MICs 23 31 26 30 34 40 60 91 88
105
MIC (Middle Income Countries)
Argentina 56 55 39 32 65
119
137 95
125
Brazil 53 66 78 71
115
165
220
243
259
Chile 8 11 4 13 17 38
Costa Rica 6 5 3 16
Malaysia 20 41
104
142
237
Mexico 77 99 81 74 76 82
141
190
157
185
Turkey 2 28 36
Uruguay 1
Thailand 15 21 92 61
TOTAL
104,329
106,413
117,006
139,825
164,558
174,743
212,377
243,062
295,926
334,445
342,441

17. Lee, Keun & Byung Yeon Kim (2009, World Development)
While the institution supremacy view tends to discard policies in favor of institutions, this paper: both matters but differently at different stage of economic development.
New policy variables which do not turn into being insignificant even when added together with institution variables.->Technology
Only with several new policy variables, such as emphasis on tertiary education and R&D expenditure, can one explain the recent “reversal of fortune” between East Asian economies and Latin American countries

18. Different Engines at Different Stages
Engine of growth should be different for countries at different stage of economic development, namely between higher income and lower income countries.
-primary and/or secondary education and institution matter more for lower income countries,
- tertiary education and technology policies (higher R&D/GDP ratio) matter more in the transition from upper middle to high income countries.

20. Summary 1) both institutions & policies (Tech. & education) matter
2) has identified and confirmed the growth impacts of new policy variables, such as technology and tertiary education, which have been often neglected in the literature and field.
3) secondary education and institution, important for lower income countries;
technology and higher education,effective in generating growth for upper middle and high income countries but not for lower middle and low income countries

21. 2nd Q: across sector difference in catchup
2nd Q: across sector difference in catchup? (productivity; patent shares) Answer: differ in SSI (Sectoral Systems of Innovation; Technological Regimes of Sectors) Lee & Lim (2001, Research Policy) Park and Lee (2006: Industrial & Corporate Change) Jung and Lee (2008)

22. TFP Catch-up index : All Mannufact.
Rapid catch-up
(about 30%)
Sustain Gap
(about 10%)
Note : Note TFP level of all Japanese listed firms in each year is set to be 100.
We can regard the difference as % gap of TFP between two countries. 22

23. “JUST” : Samsung v.s. Matsushita
Sam. Elect.:
OVER
While Industry : JUST 23

24. “UNDER” : Hyundai v.s. Toyota
H.M. : Under
like industry 24

25. Share by Korea and Taiwan in the US patents:25 25

26. IPRs, financial systems
Malerba’s SSI
Knowledge &
Technologies
Networks among actors
Actors 1:
Firms
Demand &
Market Regimes
Actors 2:
Gov’t, GRIs
Institutions
IPRs, financial systems

27. learning and capability (numerous literatures)
한일간 생산성 추격의 설명
Hypothesis 1, 2
Hypothesis 1
Hypothesis 2
Explicitness of knowledge and technology(+)
Degree of embodied technology transfer(+)
Top firm dominance(+)
Innovation(TFP catch-up)
(Sectoral catch-up + Firm level catch-up)
Sectoral Systems of
Innovation
(Malerba 2002, 2004)
Firm level
learning and capability
(numerous literatures)
External discipline(+)
Efficiency wage(+)
Innovation capability(+)
Size(+) 27 27

28. Explicitness of knowledge and technology (Patent/R&D)
and TFP catch-up
Industry
code (Icpacode)
Industry name
TFP Catch-up Index
in 2004
Explicitness of knowledge and technology (Patent/R&D)
1990
1995
2000 20
Electrical machinery
96.6
6.2
25.6
4.2 21
Motor Vehicles 88
1.4
11.1
2.3 23
Instruments 61
1.2
1.8
2.7
Note. The values in the table are industry total patent number over industry total R&D expenditure(unit : 1billion) in each year. 28

29. Degree of embodied technology transfer (machinery import ratio)
and TFP catch-up
Catch-up pattern
Degree of embodied technology transfer (machinery import ratio)
1985
1990
1995
2000
2003
Over, Just
0.36
0.32
0.33
0.41
0.42
Under, Reverse
0.34
0.27
0.24
0.25
Note. The values are average of all the sectors(19 mannufacturing sectors:10 sectors with Over and Just patterns and 9 sectors with Under and Reverse patterns) showing each pattern. 29

30. Degree of embodied technology transfer (machinery import ratio)
and TFP catch-up
Catch-up pattern
Degree of embodied technology transfer (machinery import ratio)
1985
1990
1995
2000
2003
Over, Just
0.36
0.32
0.33
0.41
0.42
Under, Reverse
0.34
0.27
0.24
0.25
Note. The values are average of all the sectors(19 mannufacturing sectors:10 sectors with Over and Just patterns and 9 sectors with Under and Reverse patterns) showing each pattern. 30

31. Regression Result 31

32. Average Annual Growth Rates of the US Patents G6
2.40
4.13
3.25
Korea &`Taiwan
21.29
34.07
27.44
Asia 4 + L.A.
3.71
11.43
7.42
Asia 4
6.96
15.69
11.11
Latin America
0.46
7.18
3.73
Korea
21.23
43.27
31.79
Taiwan
21.34
24.87
23.09
China
23.45
9.35
16.19
India
0.00
13.76
6.66
Malaysia
1.34
20.81
10.65
Thailand
9.6
20.02
14.69
Argentina
-4.25
9.50
Brazil
3.84
9.95
6.85
Chile
6.49
6.83
Mexico
-2.98 3
-0.03

33. Objectives
Analyzing the link between technological regimes and technological catch-up using patent data.
Developing a quantitative expression of technological regimes by using the US patent data
Investigating
(1) In which sectors (or sectors of which characteristics in terms of the technological regimes) technological catch-up tends to, or tends not to, occur
(2) What affects the degree of technological catch-up.

34. Tech. Regimes (Independent variables)
1) Technological opportunities : growth rate
2) Cumulativeness of technical advances (persistence) : share of persistent registrant (with more than one at every year)
3) Appropriability of innovations : self-citation received
4) Property of the knowledge base :
originality (broad base of knowledge)
*5) Fluidity (Uncertainty) of technological trajectory :
Fluid2 = (Maximum-Minimum)/average
*6) Initial stock of accumulative knowledge : initial share
*7) Relative technological cycle time : relative citation lag
*8) Accessibility to external knowledge flows (spillover=ACCESS) : citation from non-G7 to G7

35. Determinants of technological capability and catch-up: Korea +Taiwan

36. 8 Catch-up (Asia 4 + LA), Asia 4, LA : Catch-up and capability
Variable
Occurrence of catch-up
Speed of catch-up
Level of tech. capability
8 catch
4 Asia
4L A
4L.A
4LA
OPPOR
-0.989*
-0.576
-1.560**
1.160**
0.40
2.90**
-0.078
-0.00
-0.15
CUMUL1
-0.599**
-0.454
-0.727*
0.078
-0.06
0.17
-0.134**
-0.02
-0.25**
APPRO
0.25
0.198
0.323
1.204**
2.93***
0.14
0.210***
0.18***
0.24*
NATURE
0.340
0.164
0.874*
1.21**
0.58
0.034
0.09*
FLUID2
0.12
0.102
0.149
0.079
-0.04
0.07
-0.001
-0.01
0.01
INITIAL
1.09***
1.02***
1.15***
-0.38***
-0.29***
-0.41***
0.00
0.02
CYCLE
-0.489**
-0.76**
-0.19
1.52***
0.28
2.32***
ACCESS
-1.12
-2.18
-0.31
2.07
0.80
3.77
0.31
0.04
India
-0.23**
-0.217**
0.004
-0.002
Malaysia
-0.60***
-0.581***
-0.179
-0.037
-0.04***
Thailand
-0.80***
-0.791***
-0.170
-0.13
-0.042*
Argentina
-0.39***
-0.189
0.017
Brazil
0.179*
0.567***
0.049
0.23
0.151***
0.13***
Chile
-0.88***
-0.478***
0.023
0.20
-0.041*
-0.06*
Mexico
-0.18
0.227**
0.153
0.33**
0.109***
0.09***
Adjusted R2
275.5
125.9
0.189
0.22
0.045
F-statistic
0.118
0.10
0.117
8.010
6.48
7.1
10.5
3.86
6.6
No. obs.
3008
1504
453
210
243

37. (1) Occurrence of tech. catch-up
For everybody,
short cycle time, good for catchup
(2) Speed of tech. catch-up
Difference: First 2 (Kor+Taiwan) vs. Next 8
Korea and Taiwan:
short cycle time good for catch-up,
but for the next 8, bad for catchup

38. (3) Levels of technological capabilities
First 2, higher in short cycle time sectors, but
Next 8, lower in short cycle sectors
 Two faces of leapfrogging argument (Perez & Soete): new technological paradigm may permits leapfrogging or act as additional barriers .
Changing paradigm may imply either a window of opportunity or a barrier to catch-up
 How to ride well this changing paradigm determines the chance for sustained catch-up (vs. short-lived)

39. 3rd Q: catch-up at the firm level Business groups, late-comer firms
Choo, Lee, Ryu, and Yoon (2009, Economic Development & Cultural change),
이근 외 , 기업간 추격의 경제학 (2009, 21세기북스)

40. Market shares in the US by Korean cars(%)
Catch-up trap
Source: The automobile Association of Korea,

41. an important economic phenomenon and puzzle
Business groups (대기업집단),
an important economic phenomenon and puzzle
Diversified conglomerates, “business groups,” found extensively in emerging economies.
despite globalization and liberalization, and deregulation: not decreasing
**Objectives:
1) Explain the performance changes over the 1980, 90, and 2000s and testing the effectiveness of alternatives theories
2) Suggest a new theoretical perspectives on the Business groups

42. ‘View 1: Fulfilling the Institutional Voids : Market Failure & Transaction Costs
Market Failure: Leff (1978); Goto (1982)
‘institutional voids’ argument by Khanna and Palepu (1997; 2000).
Since many of the institutions that support business activities are absent in many parts of the world, the business groups emerge to fill the institutional voids.
Prediction: Eventual Decline

43. View 2: Finance(agency cost)-based View
Chaebols’ CMS (controlling minority structure) offers incentive for excessive investment arising from the so called agency problem (separation of ownership and control)
-> We would like to study whether the Korean Chaebol firms have corrected themselves from investment inefficiency during and after the 1997 Asian crisis period whereas they were subject to serious investment inefficiency before the crisis

44. View 3 (Resource-based view)
Importance of technological capabilities such as patent applications might have increased over time as the economy have become more mature and open.
->We also would like to study whether the Chaebol firms have technological advantages, and whether such advantages explain the long term change in productive efficiency.
We proxy technological capabilities by patent applications by each firm.

45. Chaebol vs. non-Chaebol: over-investment, patents, etc

46. Summary and Conclusion
Korean Chaebols in the 1990s suffered from productive inefficiency arising from inefficient investment drives.
Failure of many Chaebols before and during the crisis period implies that only those Chaebols that have succeed in curtailing investment inefficiency and building new technological capabilities have survived the crisis.

47. Law of decline: wrong
Results in this paper suggest a need to restate the thesis of institutional or market imperfection in predicting performance of business groups:
While market institutions must have affected the performance of all the business group firms, some survived the environmental challenges while others not.
No general “law” of long term decline of business groups.

48. Toward a Theory of Catching-up Firms Advanced Countries
(High capability Firms)
Developing Countries
(Low capability Firms)
all resources available
many resources lacking
optimization of resource uses
development of resources
profit maximized for distribution (dividends)
Growth maximized with profits (re-investment)
R&D capital, Brand capital, managerial capital
Physical capital, workers human capital, social capital
Profitability > growth
Growth > profitability

49. Limits of the Existing Theories from the West
Transaction costs economics:
-- Markets (yes, no)
Resource-based theory of the firm:
-- Resources (yes, no)
In the beginning in the late-comer economies, nothing was there, no markets, no resources, even the firm itself

50. Building-up Capability of (successful) BG
Stage 1
Stage 2
Stage 3
Stage 4
capability
Nothing
Project Execution
Vertical integration/
Horizontal integration
Innovation/
Product Development
Behavior
Rent-seeking
unrelated /related diversification
Replication/
Geographical diversification
Specialization
Specificity
random
Less sector-specific
Sector-specific/
Across several core sectors
Technology-
specific
Samsung: , 70s s s post-crisis
BGs in Old view (Inst. Voids): those at stages 1 and 2

51. 한국기업의 선발기업 추격의 비밀

52. 캐릭터 인형생산 오로라 월드의 매출 (1992 자기브랜드 전환 이후의 위기)
OEM Trap

53. 제 1 부: 들어가며
1장. 기업간 추격을 분석하는 틀
2. 한일 기업 간의 생산성 추격의 유형과 원인
제 2부 소비재 기업
3. OBM을 향한 전통 소비재 기업의 변신과 추격: 오로라월드, 한국도자기, 락앤락
4. 신형 소비재 기업의 추격: 심로악기, 쿠쿠, 한국헬멧
5. 화장품 산업에서의 추격과 반전: 아모레, 미샤, 더페이스샵
제3부. IT와 인터넷 기업
6. NHN의 추격과 M&A 전략
7. 삼성전자의 소니 추격: 특허를 이용한 분석
제4부. 조선, 철강, 부품소재 산업
8. 부품 소재 중소 기업: 주성엔지니어링과 썬스타자수기
9. 포스코의 기술 추격: 특허로 본 신일본제철과 비교
10. 한국 조선 산업의 추격
제5부: 결론과 요약
11. 기업간 추격의 경제학

54. conclusions: Technology and Entrepreneurial firm matter for Catch-up -> Two Black Boxes in Economics (Innovation and Firms) Successful catch-up is different from simple growth, and thus often requires leapfrogging (path-creating or stage-skipping).

55. Three Patterns of Technological Catch-up
Path of the Forerunner : stage A --> stage B --> stage C --> stage D
Path-Following Catch-up : stage A --> stage B --> stage C --> stage D
  eg. PC, some consumer goods, and Machine Tools
Stage-skipping Catch-up (leap-frogging I) :
stage A > stage C --> stage D
eg. Hyunda's fuel-injection engine development (cf. carburetor engine)
Samsung' 64 K D-Ram production technology; 256 K D-ram design technology
Digital automatic telephone switch developed by indigenous firms in China
Path-Creating Catch-up (leap-frogging II)
stage A --> stage B --> stage C' --> stage D'
eg. CDMA development, digital TV
( Notes: C and C', represent competin technologies.)
( source: Lee & Lim 2001: Research Policy)

56. = upgrading in a given industry
The Process of Sustained Catch-up (Korea & Taiwan)
= upgrading in a given industry
+ successive entries into new industries.
Upgrading: In a given industry, move up along the OEM-ODM and OBM.
(b/c forerunners are always moving their orders; need to hold to higher value-added orders )
Entries: after acquiring certain design capabilities, how to use them to strike a late but fast-following entries into new emerging industries
(b/c industries themselves are changing, often becoming declining industries or new industries are emerging by initiatives by forerunners)

57. Upgrading in the same industry:
Value Chain in Semiconductor Sector
High value-added
Low value-added

58. Taiwan: IC related revenues (1989-1998):
Starts at back-end of value chain, and moves forward
Source: ERSO/ITRIS

59. Successive Entries: Composition of sales in Samsung
2.4 1
1.1 3 1
1.6
Source : Chang (2003), Notes: numbers are share percentages in sales

60. Taiwan Tatung’s Successive Entries since the 1960s
Product Introduction dates
Black & While TVs
Color TVs
B&W TV picture tubes
VCRs
High Resolution Color TV tubes
PCs Mid-1980s
Hard Disk Drives Mid-1980s
TV Chips/ASICs Late 1980s
Sun workstation Clones
14 inch color Monitors
Source: H. Khan (2002)

61. From the Washington Consensus To the BeST Consensus
(Beijing-Seoul-Tokyo)
For sustained catch-up
Keun Lee** and John A. Mathews*

62. Washington Consensus vs. East Asian Consensus
A. Elements of Consensus
South Korea
Taiwan
China
A1. Macroeconomic stabilization
1. Fiscal Discipline
Yes, generally
Yes
2. Pub. Expenditure to Health, Edu, Infra
3. Tax Reform, broadening the Tax Base
Yes since 1994
4. Unified & Competitive Exch. Rates
Yes, except 60s
Yes, since 1994
5. Secure Property Rights
Yes, since 60s .
Mixed
A2. Privatization, Deregulation and Liberalization
6. Deregulation
Limited
7. Trade Liberalization
Limited until the 80's
Limited until 2002
8. Privatization
many SOEs in 50, 60s
Many SOEs in 50, 60s
No, still SOEs dominant
9. Elimination of Barrier to FDI
Heavily restricted
subject to control
some sector restricted
10. Financial Liberalization
B. Missing Elements from the Washington Consensus
11. Export Promotion + Tariffs
Yes, very strong
yes, very strong
12. Technology Policy for Upgrading
Yes, since 1970
Yes, since the 1980s
priority since 90s
13. Higher Education Revolution
Yes, since mid 1990s

63. WC, declared “dead” by Rodrik (2006)
it is fair to say that nobody really believes in the Washington Consensus (WC ) anymore,
the question is not whether the WC is dead or alive but what will replace it.
We agree with this formulation, and accept Rodrik’s challenge to propse a new Consensus.

64. Beijing Consensus
Emphasis on the following three at earlier stage of economic development
Parallel learning from FDI
Forward Engineering
Active role of domestic academic institutions
Acquisition of Technology and Brand through International M&A
So-called “Going Global” (Zouchuqu) strategy

65. Figure 1: Local Products vs
Figure 1: Local Products vs. Imported products in Switch Market in China ( )

66. Knowledge Diffusion, Market Segmentation & Technological Leapfrogging
Trajectory of
Telephone
Switch Technology :
Foreign Path: Manual  Step-by-step  Crossbar  Analogue electronic  Digital SPC
Chinese Path: Manual  Step-by-step  Crossbar   Digital SPC
Great Dragon
(1995, HJD-04)
Datang
(1995, SP30)
Zhongxing
(1995, ZXJ10)
CIT (R&D)
PTIC (Finance & PM)
LTEF (Manufacturing)
(1991:
HJD-04)
Huawei
(1995:
C&C08)
Bell Telephone
Manufacturing
Company
Shanghai
Bell
( 1984:
System-12)
Technology
Transfer
Trading Market
for Technology
Knowledge
Diffusion
Person Mobility
Document study
Technical Help
Government
Policy
Protection &
Coordinating
Market
Segmentation
Corporate
strategy &
Culture

67. Unique Chinese Mode 2: Beijing Consensus
Forward Engineering by University-run enterprises
(cf: reverse engineering of Korea, Taiwan)
China has reared some national champions in high-tech sector by exploiting universities’ scientific knowledge.
Lenovo, Founder, Tsinghua Tongfang, Dongruan (so-called Academy-run enterprises, AREs)
Fwd Eng. differentiates China from other East Asian Countries
Although UREs are now under reform, Chinese academic institutions are highly motivated to directly contribute to the real world economy.
Different from Latin American counterparts and from the ones in East Asian countries

68. University-run Enterprises listed on the Stock Markets (Table 1 )

69. Development as a process of capability Building
the most obvious or ex-post difference between the developed and developing countries is per capita GDP:
But, where does the difference in the income level come from?
It comes from the differences in capabilities in many aspects, including the capability to produce and sell internationally competitive products for a prolonged period of time.

70. Beijing-Seoul-Tokyo Consensus
A. Two Agents
1. Private Firms (PF)
2. Pilot Developmental Agency (G)
B. Processes for Capability Building (PF + G)
3. Arranging accesses for external knowledge
4. Export-based engagement with global economy for disciplinary learning
5. Targeting import-substituting technologies/sectors
6. Sequential upgrading for dynamic comparative advantages
C. External Environment for Capacity building (G)
7. Generic human capital enhancement
8. Catch-up friendly financial system
9. Macroeconomic stability
10. Phasing out of non-market interventions

71. Schumpeter: Depress is a time for reversal (catchup)
Up turns: time for incumbents
Down turns: window of opportunity opens;
input prices falling
* more so , when there is a paradigm shift
?decline of the US hegemony

72. Meu Amigo! Obrigado!
Thank you!
謝謝大家
감사합니다

73. References (www.keunlee.com)
Lee, Keun, & BY Kim,”Both Institutions & Policies matter but differently at differnent income levels: long run economic growth,: World Development (2009)
Lee, Keun, & C. Lim (2001), “Technological Regimes, Catching-up & Leapfrogging: the Findings from the Korean Industries”, Research Policy,
Lee, Keun, Chaisung Lim, and Wichin Song (2005), "Digital Technology as a Window of Opportunity and Technological Leapfrogging: Catch-up in Digital TV by the Korean Firms”, Inter.J. of Tech. Management, Vol. 29, 1/2, pp
Lee, Keun, “Making a technological Catchup.” Asian J.of Tech. Innovation, 2005.
Mu, Qing, and Keun Lee (2005), “Knowledge Diffusion, Market Segmentation and Technological Catch-up: The Case of Telecommunication Industry in China”, Research Policy.
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