1. Schumpeterian Analysis of Economic Catch-up: Firm, Sector and country Levels
Keun Lee 李根
Prof. of Economics, Seoul Nat’l University
Director, Center for Economic Catch-up
Editor, Research Policy  

2. Winner of 2014 Schumpeter Prize
Innovation system at 3 levels:
Winner of 2014 Schumpeter Prize

3. The book endorsed by: Richard Nelson; Justin Lin
Franco Malerba’ John Cantwell
Ha-Joon Chang; John Mathews
“The story Keun Lee tells is fascinating and thought provoking. This book lays out a convincing new perspective on the conditions behind the remarkable development of manufacturing in South Korea and Taiwan.
The well documented argument is that in several of the industries where firms in these countries were very successful, technology at the frontier was going through a transition, with the technology coming in requiring a different set of skills and capabilities than the technology becoming obsolete. This diminished the advantage of the old industrial leaders and provided a window of opportunity for effective entry in these two economies. The story Keun Lee tells is fascinating and thought provoking.”
Richard Nelson, Columbia University

4. What is catch-up? “Catching up, forging ahead, and falling behind” (Abramovitz, 1986 JEH) 1) national level: per capita income, share in world GDP, 2) firm-level: market share, sales growth, productivity => rise and decline of nations and firms (and sectors)

5. Record of Catching-up / Falling behind:
As % of the US per capita Income ( in 2005 Constant PPP)

6. Trend of the Income Levels as Percentage of that of Japan:
=> Korea, Taiwan: No catching up in 60s, 70s:-> only from 1980s

7. Many countries are in the MIT (Middle income trap)
Source: World Bank 2012,

8. Flat R&D/GDP as source of MIT (middle income trap)

9. What is MIT?
MIT = a slowdown of growth in middle-income countries (MICs) -- caught between low-wage manufacturers and high-wage innovators. (Lin 2012; Williamson 2012; Yusuf and Nabeshima 2009; World Bank 2010 and 2012; S pence 2011); Why important? - 70% of World Poor in MICs; - It is future of the LICs (low income C’s) 9

10. Lee, Keun & B. Kim (2009, World Development)
Confirms importance of Innovation (patent count)
for middle and higher income countries
(cf: for lower income countries: basic human capital and political institutions significant)
This study: beyond just patent counts;
=> more details of the NIS
Eg) cycle time of tech.
localization of knowledge creation,

11. Schumpeterian Perspective: National Innovation systems
Lundvall (1992): defines NIS = elements and relationships 1) which interact in the production, diffusion and use of knowledge 2) rooted inside the borders of a nation state.’ It is about efficiency in acquisition, creation, diffusion, and utilization of knowledge. -> The differences in NIS determines different levels of competitiveness of nations.

12. ->b/c extractive vs inclusive institution
Acemoglu and Robinson,
Why Nations Fail
->b/c extractive vs inclusive institution
Bill Gates’ book review “Never explain how to move to more “inclusive” institutions” Inclusive vs. extractive : -> relevant more in low income or pre-modern economy b/c less difference among middle income countries => Why Nations Fail at Middle Income Stage: due to not-Innovative systems

13. ( constraints on executives)
Quality of
Political Institutions
( constraints on executives)
1965
1980
2000
Korea 3 1 6
Taiwan 2
Philippines 5
Thailand 7
Malaysia 4
China
India
Brazil
Argentina
Chile
Mexico
Source: Polity IV Dataset; from Lee and Kim 2009 table 1

14. Who are Neo-Schumpeterians?
Adam Smith: birth of new world Karl Marx: law of motion of capitalism John Keynes: demand side Joseph Schumpeter: supply side Tech. change as key engine of economic change Neo-Schumpeterian Tech. change can be endogenous , predictable ; Law of motion in innovation The study by Keun Lee and other scholars: Innovation also key engine of catching-up ; catching-up can be explained and predictable

15. The 3 Failures as Justification for Gov’t Activism Market failure
System failure
Capability failure
Focus
Market institutions
Interaction among actors
Actors (firms)
Source
Knowledge as
public good
Cognition failure
from tacitness of knowledge
historically given;
No learning opportunity
Example problem
Sub-optimal R&D
R&D impact: low
No R&D
Solutions
R&D subsidies
Reducing cognitive distance
Access to knowledge
and help in learning
School Analogy
Tuition support
Making more friends
Targeting student learning
Relevance
Developing and
advanced countries
More unique to developing countries
From Keun Lee, a chapter in Stiglitz & Lin eds, 2014

16. Analysis at 3 levels => different question
Country: What determines catching-up growth:
-> per capita income growth
Sector: Why easy to catch up in some sectors;
why not in others ?
-> Country’s US Patent share in sectors
3) Which the CIS (corporate innovation system) a good fit for catching up;
sales growth, profitability, firm value, productivity
=> different question
-> same answers = knowledge variables

17. Key Variable = cycle time of technologies
Cycle time = speed of change in the knowledge base of a technology
= mean citation lag in patent citations
“To catch up, specialize in Short cycle technology-based sectors“
because 1) old knowledge quickly obsolete/useless
-> less need to bother about them:
less disadvantageous for the latecomers
+2) new knowledge tend to emerge more often
-> greater opportunity for growth
=> technological sectors
with less reliance on the old technologies
 You got to be different from the North, than trying to be similar from the beginning (opposite to Hausmann )

18. Overall: Short cycle technology matter

19. Four Key Variables and Hypotheses
at three Levels of country, sector & Firms
4 Hypotheses : Growth strategies
Technological specialization 1
(short vs. long cycle)
Technological. Specialization 2
(high vs. low originality )
Localization of knowledge creation & diffusion
(vs. reliance on foreign sources)
Balanced vs. Concentration of knowledge creation

20. (1) Patent number; (2) Grant year (3) Grant date
Data: NBER USPTO patent data
Patents registered from 1963 to 1999; later update to 2006
Patent citation data made from 1975 to 1999; updates to 2006
: at (
: NBER website (
Information in the database
(1) Patent number; (2) Grant year (3) Grant date
(4) Application year (starting in 1967)
(5) Country of first inventor ;
(7) Assignee identifier, if the patent was assigned (starting in 1969)
(8) Assignee type (individual, corporate, or government; foreign or domestic)
(9) Main U.S. patent class (UPC);
(11) citing patent number and cited patent number (patent citation pair data)
Retrieved at the country, tech. classes (sectors)
and firm levels (Korean, US firms)
Regression analysis

21. 1st Question: Recent Debates on Long Run Economic Growth
Institution vs. Policies vs. Geography
1) Not policies but Institutions matter:
(Acemoglu, et al 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)
=> Innovation still missing;
different factor matter at different stage of development

22. From just patent count to other details of knowledge base:
the Key NIS variables by country groups
High Income Countries
Middle Income Countries
Korea and Taiwan
Mean(μ0)
Mean(μ1)
Mean(μ2)
Herfindhal index
0.105
0.374
0.206
Intra-national knowledge diffusion index
0.092
0.036
0.041
Technology cycle (years)
9.341
9.946
8.512
Originality index
0.284
0.265
0.217
Number of Patent
4965.2
52.4
920.7
Quality of Patent
73.0
1583.2
Technology capability
9.00E+08
8.74E+03
3.09E+06

23. Intra-national Citation in Patents (~self-citation)

27. Middle Income Countries
Basic Descriptive Data of the country groups
High Income Countries
Middle Income Countries
Korea and Taiwan
Mean(μ0)
Mean(μ1)
Mean(μ2)
Real GDP per capita growth rate (four-year average %)
0.102
0.067
0.260
Initial GDP per capita, each period
15823
2883
5170
Population growth rate (four-year average %)
0.032
0.077
0.054
Fixed investment per GDP (%)
23.5
23.0
27.9
Enrollment rate of secondary education (%)
95.6
58.6
80.7
Number of Patent
4965.2
52.4
920.7
Quality of Patent
73.0
1583.2
Technology capability (share)
9.00E+08
8.74E+03
3.09E+06
Notes: High Income Countries are those whose GDP per capita in 2000 constant prices exceed US$ In both groups, only those countries that have more than 10 U.S patents in every period are included.

28. Regressing growth onto National Innovation systems: Asian 4 as benchmark
High Income
middle Inc.
World
Tech cycle time
(-)*
(+)*
Localization of knowledge +
Originality
HH: inventor concentration
Asian 4 Dummy
(+) *
Controls: Initial income, Population, Investment, secondary enrollment
Shorter cycle leading to growth in Asian 4

29. Fixed Effect Panel Model
System-GMM Model
　per capita income growth
High Income
Middle Income
Dummy Model
Log of initial GDP per capita for each period
(-2.57)**
(-4.02)***
(-4.78)***
(-2.81)***
(-3.07)***
(-4.87)***
Growth rate of population for each four-year-period
(-1.71)*
(-1.70)*
(-2.90)***
(-0.09)
(-0.21)
(-0.39)
Fixed capital investment per GDP
0.0030
0.0146
0.0093
0.0089
0.0242
(1.08)
(4.12)***
(4.24)***
(2.58)***
(3.43)***
(2.68)***
Enrollment rate of secondary education
0.0006
0.0009
0.0001
(0.99)
(0.69)
(1.65)
(0.03)
(-1.40)
(-1.38)
Herfindhal index
(-2.40)**
(-2.14)**
(-3.17)***
(-1.94)*
(-2.85)***
(-2.70)***
Intra-national knowledge diffusion
0.5128
0.3296
0.6397
0.3581
1.0351
0.8361
(1.87)*
(0.90)
(1.96)**
(1.74)*
(1.07)
(3.32)***
Technology cycle
0.0249
0.0145
0.0319
0.0284
0.0274
0.0636
(3.13)***
(2.30)**
(3.50)***
(2.42)**
(2.01)**
Originality index
0.1152
0.0239
0.4870
(-0.52)
(0.73)
(0.10)
(-0.67)
(-0.90)
Dummy (middle )
(dropped) **
Dummy*Herfindhal index
0.2059
0.4534
(2.19)**
Dummy*Intra index
0.1565
(-0.63)
(0.49)
Dummy*Technology cycle
(-1.79)*
(-2.04)**
Dummy*Originality index
0.0674
0.8946
(0.26)
(1.73)*

30. Results with a dummy for 4 Asian : fixed effect models
High Income group (1)
Middle Income Group (2)
Whole World (3)
Log of initial GDP per capita for each period
(-4.57)***
(-4.32)***
(-5.48)***
Growth rate of population for each four-year-period
(-2.26)**
(-1.76)*
(-2.74)***
Fixed investment per GDP
0.0070
0.0140
0.0102
(2.72)***
(4.36)***
(5.05)***
Enrollment rate of secondary education
0.0008
0.0012
(1.70)*
(0.62)
(2.43)**
Herfindhal index
(-2.42)**
(-3.04)***
Intra-national knowledge diffusion index
0.5939
0.3411
0.4261
(2.52)**
(0.98)
(2.09)**
Technology cycle
0.0381
0.0147
0.0195
(5.21)***
(2.45)**
(4.49)***
Originality index
0.0200
0.1236
0.0741
(0.10)
(0.83)
(0.70)
Dummy (Asian 4)
1.2881
1.1123
1.1134
(2.37)**
(2.91)***
Dummy*Herfindhal index
(-2.11)**
(-1.87)*
(-1.88)*
Dummy*Intra index
(-0.31)
(-0.39)
(-0.68)
Dummy*Technology cycle
(-3.16)***
(-1.39)
(-1.78)*
Dummy*Originality index
(-1.53)
(-1.09)
(-1.48)
Constant
2.6933
2.3479
2.1035
(4.16)***
(4.11)***
(4.97)***
Number of obs
112 95
191
Number of groups 28 27 51 R2
0.282
0.204
0.118

31. Summary: country-levels
High income countries are those with
more even distribution of inventors,
higher rate of intra-national knowledge diffusion,
by higher rate of originality
shorter time of technology cycle (than other MICs)
but longer than Asian 4s.
2) These variables are all significantly related to growth,
except originality variable.
3) Among two suspects of catching-up growth:
intra-national knowledge diffusion; short cycle technologies

32. * Difference: Specialization into short cycle time technologies
Longer cycle time is positively related to economic growth in both of high and middle income countries,
but negatively (thus shorter time is positively) related to economic growth in the Asian 4
-> detour from long cycle to shorter cycles
over the catching up period
-> others, eg LA, MIC are still in the long cycle fields

33. Top 10 Classes of G5 vs Korea-Taiwan ->no overlap
Class Name
Patent count 1
514
Drug, Bio-Affecting and Body Treating Compositions
10349 2
428
Stock Material or Miscellaneous Articles
3883 3 73
Measuring and Testing
3789 4
123
Internal-Combustion Engines
3479 5
424
3389 6
210
Liquid Purification or Separation
2853 7
435
Chemistry: Molecular Biology and Microbiology
2852 8
250
Radiant Energy
2639 9
264
Plastic & Nonmetallic Article Shaping or Treating
2349 10
324
Electricity: Measuring and Testing
2325
Korea-Taiwan
Class
Class Name
Patent count 1
438
Semiconductor Device Manufacturing: Process
1189 2
348
Television
712 3
439
Electrical Connectors
408 4
257
Active Solid-State Devices ( Transistors, Solid-State Diodes)
374 5
362
Illumination 6
280
Land Vehicles
355 7
365
Static Information Storage and Retrieval
346 8 70
Locks
340 9
360
Dynamic Magnetic Information Storage or Retrieval
313 10
482
Exercise Devices
311

34. Top 10 Classes of G5 vs 8 middle-income countries -> similar
Class Name
Patent count 1
514
Drug, Bio-Affecting and Body Treating Compositions
10349 2
428
Stock Material or Miscellaneous Articles
3883 3 73
Measuring and Testing
3789 4
123
Internal-Combustion Engines
3479 5
424
3389 6
210
Liquid Purification or Separation
2853 7
435
Chemistry: Molecular Biology and Microbiology
2852 8
250
Radiant Energy
2639 9
264
Plastic & Nonmetallic Article Shaping or Treating
2349 10
324
Electricity: Measuring and Testing
2325
8 mid income's
Class
Class Name
Patent count 1
514
Drug, Bio-Affecting and Body Treating Compositions
120 2
424 76 3
435
Chemistry: Molecular Biology and Microbiology 54 4 75
Metallurgical Compositions, Metal Mixtures 52 5 65
Glass Manufacturing 44 6
604
Surgery 7
210
Liquid Purification or Separation 40 8
423
Chemistry of Inorganic Compounds 9
502
Catalyst, Solid Sorbent or Product 10
123
Internal-Combustion Engines 38

35. 2nd Question: Sectoral difference in catch-up Answer:
2nd Question: Sectoral difference in catch-up Answer: . (Sectoral Systems of Innovation; Technological Regimes of Sectors) Lee & Lim (2001, Research Policy) Park and Lee (2006: Industrial & Corporate Change) Jung and Lee (2010: Industrial & corp. change)

36. TFP Catch-up : Korea vs Japan
Rapid catch-up
(about 30%)
Sustain Gap
(about 10%)
Source: Jung and Lee (2010: Industrial & corp. change) 36

37. Convergence of Productivity in IT: korea vs Japan
Sam. Elect.:
OVER
While Industry : JUST 37

38. “Still Gap in Autors: Hyundai vs. Toyota
H.M. : Under
like industry 38

39. First tier 2 :Korea and Taiwan Extension of Park & Lee, 2006, (Industrial and Corporate Change) To: 2) Second Tier: 8 2-a) Asia 4: China, India, Malaysia, Thailand 2-b) LA 4: Brazil, Mexico, Argentina, Chile

40. 1st step: Occurrence of Catch-up : (1 or 0 in positive change in paten shares in 417 classes, 80-95) No differ. bt. Asia 4 and LA
Mean G5
0.348
Korea_Taiwan
0.814
Asia 4 + LA4
0.151
Asia4
0.140
Latin America4
0.162
China
0.226
India
0.170
Malaysia
0.096
Thailand
0.066
Argentina
0.130
Brazil
0.276
Chile
0.059
Mexico
0.181

41. 2nd step: Speed of Catch-up (%P. change, 80-95): Big difference bt
2nd step: Speed of Catch-up (%P. change, 80-95): Big difference bt. Asia 4 and LA
Mean G5
-2.246
Korea_Taiwan
3.677
Asia 4 + LA4
0.030
Asia 4
0.059
Latin America4
0.000
China
0.106
India
0.066
Malaysia
0.035
Thailand
0.028
Argentina
-0.015
Brazil
-0.008
Chile
0.023
Mexico
0.002

42. 3rd step: Level of technological capability: (average share for the 1980-95)
Mean % G5
8.804
Korea_Taiwan
2.164
Asia 4 + LA
0.080
Asia 4
0.041
Latin America
0.120
China
0.061
India
0.059
Malaysia
0.024
Thailand
0.019
Argentina
0.078
Brazil
0.211
Chile
0.020
Mexico
0.170

43. 8 Independent variables measuring tech regimes
1) Technological opportunities : average growth rate
2) Cumulativeness of technical advances (persistence) : share of persistent registrant (with more than one at every year)
3) Appropriability of innovations : share of self-citation received
4) Property of the knowledge base :
originality (broad base of knowledge)
*5) Fluidity (Uncertainty) of technological trajectory :
Fluid2 = (Maximum count-Minimum)/average count of patent
*6) Initial stock of accumulative knowledge : initial share
*7) Relative technological cycle time (speed of change) : relative citation lag
*8) Accessibility to external knowledge flows (spillover/ACCESS) : citation from non-G7 to G7

44. Regression models 1) Occurrence of technological catch-up
= F (technological regimes)
whether or not there is positive change in the US patent share of a country (probit regressions)
2) Speed of technological catch-up
degree of positive change in share
(regressions for the sectors with occurrence)
3) Level of technological Capability (share by a country)

45. Sector level: In which sector more patents? (Korea +Taiwan) vs. G5
=> Korea+Taiwan: more share in short cycle;
cf) G5 more share in long cycle sectors

46. 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
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
For next tier 8: cycle time-> positive and insignificant
Cf) Korea+Taiwan: negative and signficant

47. 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 with truncation of learning (Lall 1992; 2000)
Changing paradigm = 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)

48. Summary: Sectoral patterns of catching up:
-> catch-up happened in such sectors as:
Short cycle technology sectors
High appropriability sectors
Plus (Jung & Lee 2010)
Explicit /codified (less tacit) knowledge sectors
Oligopolistic sectors with firms with export-orientation (domestic rents + external discipline);
-> Schumpeter’s insight

49. 3rd Question:
Catch-up at the firm level:
CIS (corporate Innovation systems);

50. in the advanced countries and the late-comer countries
Our departing point
Firms
in the advanced countries
and the late-comer countries
are different in many aspects,
including
their levels of capabilities and behavior.
*There should be more differences => this study
-> knowledge bases of the firms
cf) Schumpeterian theory of the firms (Winter, Nelson): accounting inform. not enough to show heterogeneity of firms

51. Comparing Korean firms with the American firms
the former representing firms from late-comer countries ;
the latter representing the firms from the advanced countries.
; focuses on innovation systems of firms,
-> such as cycle times of firms’ technology,
self-citation (self-production of knowledge)
technological diversity of firms,
Originality of firms’ knowledge base,

52. Specializing in Short cycle technologies and Leapfrogging: Hypo 1
A shorter cycle =>
latercomers do not have to master older knowledge and patents.
-> less disadvantageous in such sectors;
-> So, catching-up firms better specialize in short-cycle technologies.
-- consistent with the leapfrogging hypothesis (Perez & Soete 1988):
So far no research that confirms this view at the firm level,
cf) Park and Lee (2006:ICC) confirm this at the sector level using patent data.

53. Catching-up (Korean) vs. Mature (US) firms:
The former in short cycle technologies

54. Consolidation of self-production of knowledge: high in US vs
Consolidation of self-production of knowledge: high in US vs. low in Korea : Hypo 2
Will compare the self-citation ratio in the patent citations
between catching-up vs. advanced firms.
self-citation:
= degree to which one’s innovation builds upon its own knowledge pool accumulated over the past.
Hypo. : the more advanced a firm is, the higher self-citation ratio.
Hypo: some correlation between self-citations and performance

55. Catching-up (Korean) vs. Mature (US) firms:
The former in low self-citation (localization)
USA Firms

56. Self-citation Ratio of Samsung Electronics and Sony:
(Joo and Lee 2010)

57. 2 Additional Aspects: Originality and Diversity
Impact of the originality of the knowledge base of a firm
-- U.S. firms listed on the stock market would be on the frontier of technologies
>their knowledge base/pool is full of more original ideas
Hypo: originality , higher in U.S. firms compared to Korean firms.
Cf) no study has confirmed the significance of this variable; 
the literature tends to emphasize the importance of “being creative or original” in today’s world of competition in the era of knowledge-based economy.
2) Diversity into more technological fields vs. concentration into a few fields:
Hypo: more advanced (mature) = more diversity than catching-up firms

58. Measurement : originality
Def) If a patent cites patents from more diverse fields, more original
-> The broader is the technological root of the underlying knowledge or research related to the patents, the higher originality of a patent.
--Synthesis of divergent ideas is probably characteristic of research that has high originality, and hence is basic in that sense (Trajtenberg et al., 1997). speed.
Formula: for each firm i.
ORIGINALITY = 1-
where k is the technological sector (more precisely patent class k),
NCTINGik = No of citations made by the patent held by firm i to patents that
belong to patent class k,
and NCITINGi is the total number of citations made by the patent held by firm i.

60. Measurement : Diversity (concentration)
Diversity measured in two ways.
simply the number of technological sectors (classes) that each firm has applied its patents. 
one minus the Herfindahl–Hirschman Index (HHI) of concentration, and HHI can be measured for firm i at time t as follows:
HHI = summation over k classes
of share of each class’s patent in total patents
of each firm at time t

61. Comparison of the Knowledge Variable: means
Part A: Sample means
Variable US
Korea
US-KOR Gap
t-value
Patent Count
18.5
9.56
8.94
4.592**
Patent quality
1.14
0.73
0.41
6.821**
Number of sectors with patents
6.9
4.15
2.75
5.044**
HH index
0.51
0.71
-0.2
-8.808**
(degree of sector concentration)
Originality
0.42
0.3
0.12
7.662**
Technology cycle (years)
14.05
11.91
2.15
4.39**
Intra-firm diffusion (self-citation)
0.03
0.09
18.001**
Catching-up or Korean firms , inferior to the American firms
in every aspects of knowledge variables:
patent counts, quality, originality, and its diversity.
* But note that : Korean firms to have patents with shorter cycle times than the American firms.

62. Catching up firms tend to pursue sales growth
Comparing the catching-up (Korean) firms with the advanced (US) firms : behavior
　Variables US
Korea
Difference
(US-KOR)
t-value
Number of employees
7.634**
(unit : person)
Sales per employee
187.11
294.47
-7.445**
(unit : thousand dollars)
ROA: Return on assets(%)
9.3
8.2
1.1
3.232**
ROS: Return on sales(%)
4.7
9.9
-5.2
-5.228**
TOBIN-Q
1.76
1.01
0.74
34.171**
Sales growth rate(%)
8.8
12.1
-3.3
-2.788**
Investment Propensity(%)
1.0
2.6
-1.6
-3.356**
Debt to equity ratio(%)
266.1
302.7
-36.6
-0.342
Capital Labor ratio
( unit : thousand dollar)
60.24
153.91
-93.67
-7.251**
Catching up firms tend to pursue sales growth
by borrowing and investing more,
while the advanced firms, to purse profitability and firm values.

63. Knowledge and firm performance I: benchmark with patent count only
-> not much new and not much difference of US and Korea
( based on Hausman test: random vs fixed
US firms
Dependent variables:
GROWTH
ROA
ROS
SALES/EMP
TOBINQ
Patent Count
(-)
(+)*
(+)
(+)**
No. of workers
(-)**
(-)*
Investment Propensity
Debt to Equity Ratio
Capital Labor Ratio
Obs
3475
3479
3478
3362
Korea firms
(+)+
(-)+
239
240
127

64. Investment propensity
Knowledge and firm performance II: US;
one variable in each model: no significance of cycle time
US firms
Dependent
GROWTH
ROA
ROS
SALES/EMP
TOBINQ
HH Index
(+)*
(-)
(+) **
Originality
(+)**
Tech. Cycle
Self-citation
(+)+
No. of Emp. +
Investment propensity
Debt to
Equity Ratio
Capital Labor Ratio
(-)** (-
)**

65. Investment Propensity
Knowledge and firm performance II: Korean;
no significance of self-citations
Korea firms
Dependent
GROWTH
ROA
ROS
SALES/EMP
TOBINQ
Independent
HH Index
(-)
(+)
(-)+
Originality
(+)+
(+)*
Tech. Cycle
(-)**
(-)*
Self-citation
No. of Emp.
Investment Propensity
Debt to Equity Ratio
Capital Labor Ratio
Obs
239
231
217
240
232
218
127
122
114

66. Knowledge and firm performance III: with 3 relevant variables only
US firms
Dependent
GROWTH
ROA
ROS
SALES/EMP
TOBINQ
H-H Index
(+)*
(-)
(+)
(-)**
Originality
(+)**
Self-citation
(+)+
No. of workers
(-)+
Investment Propensity
Debt to Equity Ratio
Capital Labor Ratio
Obs
3468
3472
3471
3355
Korea firms
H-H Index
Tech. Cycle
(-)*
Investment propensity
231
232
122

67. Summary: basic profiles
Behavior:
=> catching up firms tend to pursue sales growth by borrowing and investing more, while the advanced country firms, to purse profitability and firm values in stock markets.
knowledge bases:
=> catching-up or Korean firms are inferior to the American firms in every aspects of the patent counts, their quality, their originality, and its diversity.
--- except Korean firms tend to have patents with shorter cycle times than the American firms.

68. From Knowledge to Performance 1
Self-citation: significant in US firms,
not in Korean firms
Cycle time: not important in the US firms;
quite significant in Korean firms
originality does not matte much in both US and Korea firms
For Korea: Short cycle leading to higher profitability
(but not to high growth or value):
-> catching-firm pursued growth by physical investment but pursued profitability by moving into emerging/new industries,
eg. From footwear to automobile / IT.
or, in cross-sectional terms, short cycle sectors ( eg, IT) give them higher profitability than longer cycle fields (footwear)

69. From Knowledge to Performance 2
2) self-citation pattern at firm level:
-> insignificance in the Korean firms indicates still weak level
of the mechanism of self-production of knowledge,;
self-citation is only 3% in the Korean firms,
compared to four time higher level of 12% in the US firms;
medians: zero for the Korean firms, 9% US firms.
The next task for the Korean firm is to consolidate more their intra-firm knowledge creation mechanism
so that it may translate into higher productivity and firm values.

70. at the 3 Levels of catching-up
Summary
of the Study
at the 3 Levels of catching-up

71. Overall: Short cycle technology matter

72. in academic research, too
Short cycle matters
in academic research, too
Jones and Weinberg (2012)
on the age-achievement relationship in the natural sciences
Young scientists (late entrants)
to make more contributions at a younger age
in the fields of abstract /deductive knowledge
than in the more inductive fields that draw on accumulated knowledge, and in which existing knowledge is slow to reach obsolescence

73. Japan caught up with Germany by the mid 1970s

74. Japan also specializing in shorter cycle sectors than Western incumbents ->path creation

75. shorter cycle technology sectors
Diversification by moving into
shorter cycle technology sectors
Tech. turning point

77. China from late 90’s but India not yet?
India still not shorter than 9 years

78. China and India Average Cycle Time of China’s top 30 class US patents
= 8.1 years ( yrs)
Cf) Korea and Taiwan = 7.7 yrs (avg of )
Brazil & Argentina = 9.3 yrs (avg )
China more similar to Korea & Taiwan
than to Brazil and Argentina
Cf) India: applying IT (short-cycle tech) to Services
Average weighed Cycle time = 8.7 yrs ( )

79. Not yet over the Turning points In Latin American countries

80. Synthesis 3 variables out of 5 more closely related to catch-up
= those showed a different pattern
between more and less successful economies
-> cycle time, localization, & diversification
One Transition variables
= cycle time (how to catch up)
and
Two End-state variables
= localization (who is leading catching-up)
and diversification (what is catch-up)

81. Tech. Diversification = No of sector with patents / 417
cf) 417 = No of 3 digit classes in USPTO;
Diversification matter but where to diversify? => into short cycle

82. Other criteria of targeting 1) high opportunity sectors -- but: how about competition/entry barriers 2) Justin Lin: GIF framework: target mature (left-over) sectors of country above you’ -- Makes sense; b/c to find a niche (lower entry barrier); but might not be enough as you get close to Frontier (to be a HIC ; to take over) - > Lee (2013) : short cycle time: more theoretical & more for upper middle C’s 82

83. How about trade-based diversification than short cycle sectors?
** Hausman et al. (2007 JEG); Imbs and Wacziarg’s (2003 AER) :
- Diversification (of export structure) as a necessary condition for growth-> a key challenge for developing countries
-> A measure of the sophistication of tradable products using income level as the weighting factor.
-> but, tautological, as it say
“you have to move into goods currently being produced by richer countries if you want to be rich”
-> not an effective criterion for specialization; where to diversify first?
** We state the opposite:
“To specialize in sectors with short-cycle technologies
instead of those already being dominated by rich countries
(long-cycle technologies)”

84. Can take a Detour if you have a high driving skill
, when the straight road is jammed
Straight Road: but traffic jam (adding-up problem)
1980
Detour:
No jam but rough & winding road
-> need skill (tech. capability)

85. Take-home message of the book
You cannot catch up by directly emulating or replicating the practices of the forerunning economies.
Catch-up comes only if you take a different path (to find a niche)
(b/c catch-up is chasing a moving target)

86. Should allow ‘detour’ for latecomers
Should allow ‘detour’ for latecomers!!! cf) direct replication of the developed
1) Immediate trade liberalization
vs. asymmetric/selective liberalization
=> Korea, Taiwan used to be more protective;
but now most open
2) High vs. gradual protection of IPRs
=> used be low in Korea & Taiwan but now very high
3) Big Bang vs. Gradualism in system transition
=> Washington Consensus
vs. BeST (Beijing-Seoul-Tokyo) Consensus

87. To From Middle to High Income Countries
From Trade Specialization to Technology Specialization
Stages
Low or low middle income
Upper middle income
To high income
Type of specialization
Trade specialization
Technology specialization
Source of specialization
Comparative advantages
from resource endowment
Absorption/design capability
from learning/R&D effort
Type of sector
Labor intensive/resource
industries
Short cycle/emerging technologies
End goal
competitive export industries
Indigenous knowledge
creation & diffusion
Background theory
Product life cycle (inheriting)
Catch-up cycle (leapfrogging)

88. Now, How to drive the Detour: Implementation Strategies
The detour is not just smooth and easy;
-> requires certain level of
technology capacity,
not only firm-level but also at the national-level

89. 3 Steps along the Detour (to move beyond OEM/assembly)
Acquiring Design Capability
(to move beyond OEM/assembly)
2) Targeting/Entering the mature /low-end segment
of short cycle Sectors
3) Leapfrogging into New/Emerging Technologies
in the Short-cycle Sectors

91. 2 Kinds of Latecomers’ Advantage = Low cost inheriting and Leapfrogging
1) Advantage in Mature Industries (Gerschekron)
-> possibility of low cost-based entries without bothering to bear the burden of R&D costs
-> you can adopt most up-to-data facility or products
2) Advantages in Emerging Industries
-> entry at an earlier stage with the same entry costs
but without the sunk costs or being locked into old technologies.
-> Leapfrogging

92. Leapfrogging vs. Incumbent Trap
Leapfrogging: Perez and Soete (1988)
->Emerging technological paradigms
= a window of opportunity
-> not being locked into the old technological system and thus being able to grab new opportunities in the emerging industries. for the catching up country,
Cf) Forerunners’ Trap: locked into exiting technologies
due to the sunk costs of their investment.

93. Risk and Potentials of Leapfrogging:
Path-following = entry with oldest generation tech (1G)
2) Stage-skipping = entry by up-to-date generation 2 Tech
3) Path-creating /leapfrogging = entry by generation 3 technology

94. Risk of leapfrogging without Ind. Policy:
Solyndra in US; Solar panel cost in 2 generation techologies
1st G: amorphous silicon cells
China enters
2nd G: thin-film solar cell:
solyndra
Solydra entered with 2 generation tech-> failed:
Source: BNEF Bazilian et al (2012), Fig. 1

95. Now Another Paradigm Shift 1) New Energy Revolution (Renewable Energies) to replace fossil-fuel 2) Fusion of Technologies (IT, BT, NT,) in search for new solutions -> Best Time for Leapfrogging and already happening; former latecomers are no more latecomers 95

96. Stage-skipping and Leapfrogging in the Environmental Kuznets Curve
Source: adapted from Assefa (2011)

97. More Examples
Late Entry: Entering Mature Segment of Short cycle Sectors:
eg) High speed Train in China,
India’s IT service,
Middle sized Jets by Brazil
Entry into notebooks by P-P in Taiwan
Suggestion: Nigeria can build oil refinery,
rather than keep exporting crude oils
Leapfrogging into New/Emerging Segments of Shorter-cycle Sectors:
eg) Solar PV and Wind power in China and India,
Electric Vehicles by China
Ethanol or Biofuels in Brazil

98. Examples of Leapfrogging 1
Wind-Turbines, Solar power, Solar Thermal Heating in China
Wind Turbines
- By early 2000s, China relied heavily on European suppliers for most of the production and parts
-- but localized much of the production process and required inputs owing to national procurement policy and local content requirements.
-- China became the leader by 2010.
Solar thermal heating in China (developed by Tsinghua Univ)
- Rural area bypassed the stage of gas or electricity based heating but leapfrogged into solar thermal based heating.
-- Solar water heater = huge disruption on the existing residence style of urban dwellers,
whereas rural areas: no such lock-in.
 Leapfrogging driven not by supply-side (technology)
but by mismatch with the demand side

99. Examples of Leapfrogging 2 Bio-Ethanol and Bio-Diesel in Brazil
Brazil: green industrial restructuring
Technology for ethanol production was initially imported and rapidly localized with subsidies on alcohol and ethanol
- and then diffused rapidly through the R&D efforts of Brazilian Agricultural Research Corpotration, EMBRAPA.
This public entity maintained a technological watch on global developments and utilized advanced technological methods for researching Brazil’s sources of comparative advantage,
- e.g. soils suitable for sugar cane cultivation as revealed by satellite surveillance.

100. Mozambique: from Black to Green Development
Mozambique: state oil company Petromoc (modelled on Petrobras) has partnered with the Portuguese oil company Galp and local company (Ecomoz) in a $19 million investment to produce biodiesel from jatropha.
Up to 50,000 hectares of land will be dedicated to the project. Endowed with land, sunshine and adequate rainfall.
Good prospects to become a bio-fuels powerhouse, which could reduce the country’s dependence on imported fossil fuel, contribute to diversify exports
These projects financed by its Coal Exports
-> (Turning Black into Green)
Also, South-South Cooperation: help from India & Korea

101. In desert grasslands rural area
Nigeria: Solar power
In desert grasslands rural area
Jigawa State in Nigeria:
No water supply in this semi-desert area
Traditional options:
-- Open wells with rope and bucket; hand pumps;
or Government supplied diesel-powered pumps that work only until they break down or until villagers run out of money to buy the expensive diesel.
Now, solar-powered pumps designed to run maintenance free for eight to ten years or more
Solved the problem

102. O&L Groups = Namibia ‘s Samsung?
Established by G. Shilongo (Ohlthaver and List Group )
 Started from retail and Brewery:
Grew owing to gov’t protection: sales = 4%of GDP
only one company not acquired by SA who did dumping of prices to kill this company
Then, diversified into: dairy; solar energy; Entered solar power: 25% of their needs (Namiba import electricity from SA and Angola)
Plan to enter wind power : 300 m watt: but restricted entry into grid monopolized by a gov’t

103. Leapfrogging in African agriculture: Burkina Faso
Burkina Faso adopted insect-resistant GM cotton that has significant reduced the amount of insecticides than under the old methods (Vitale et al. 2010).
They skipped the first generation of GM cotton and go straight to the second generation that used stacked genes.
Such leapfrogging cannot be done without the existence of the local research capabilities;

104. Need incentives/promotion For early adopters/developers
Market-based approach:
-- Often not adequate to bring in necessary new technologies and replace unsustainable old ones in the remaining time frame before irreversible environmental damage occurs
Policy intervention: justified to correct market failures and make green technologies more profitable than less sustainable ones.
India’s Solar power
- Jawaharlal Nehru National Solar Mission (NSM)
-- used competitive reverse bidding for tariffs (rents).

105. So, Industrial Policy is 1) Not protection but earning time to learn 2) Not picking winner but picking good students and matching them with good teachers 3) to facilitate to break into higher segment of GVC and new emerging sectors 4) Sacrificing short/static gains for long-term /dynamic term gains
105

106. Space for Industrial Policy under WTO regime (along the stage of econ dev’t)
1) Production subsidies or SOEs for initial promotion (instead of local contents requirement)
2) Under-valued currency for export promotion
(b/c export subsidies prohibited)
3) R&D subsidies for innovation capa. buidling
4) Public-private Joint R&D for leapfrogging
Ind Policy = not zero sum but positive sum
for a globe (global public goods)
( also, allow IP for entry into near-monopoly market

107. ありがとう!
Gracias!
Meu Amigo! Obrigado!
Thank you!
謝謝大家
감사합니다

108. 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, K. "Capability Failure & industrial policy to move beyond the middle income trap“ in Stiglitz and J. Lin (eds.), Industrial Policy Revolution I
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.
Park, K., and Keun Lee (2006), “Linking the Technological Regime to Technological Catch-up: An Empirical Analysis Using the US Patent Data,” Industrial and Corporate Change, July 2006
Jung, M & K. Lee, (2010), “Sectoral systems of Innovation and Productivity Catch-up: between the Korean and Japanese firms,” Industrial & Corporate Change.