Lecture 4: Technological change
      and industrialization
Facts on technological change
         and Industrialization
•   The speed of the catching up
•   Trends in world trade
• ...
Periods during which output per capita doubled


United Kingdom 1780-1838

  United States 1839-1886

        Japan 1885-1...
A Technology driven taxonomy of products

• Primary products
• Manufactured products
  – Resource based: e.g. food, wood &...
Global exports are increasingly driven by innovation
                     (annual growth rates, 1985-98)




       High t...
Manufactured exports by industrial and
              developing countries, 1985-98
                                       ...
Only 12 countries account for 90% of
   developing world’s total manufactured
            exports ($ million)
180,000
    ...
Technology upgrading is vital for success:
     shares of high/medium tech products in total
80
70

60
50                 ...
The key to Korean success:
                                  A national system of learning
                               ...
The key to Taiwan success:
                                       A system of strategic alliances
Chart 6-1 Taiwan strateg...
Industrial Policy in Developing Countries
Back to the 1970s - Technological change and
               industrialization

• Embodied (and imported) technological
  c...
Back to the 1970s – Endogenous
 Technological in Developing Countries
• Differences in the efficiency of process industry
...
Different Types of ‘Innovation’/Technical
                         Change

1. C ontinuous increm ental, engineering-based ...
How did Korea do it?

Large firms (chaebol) as vehicles of developmental resource
leverage
Prior experience in mass manufa...
How did Taiwan do it?

Taiwan -- started with smaller firms

Utilized public sector research institutes
        eg ITRI In...
Taiwan: IC related revenues: 1989-
                                         1998
                        Starts at back-en...
How is China doing it?

China is utilizing all three models:

Model 1 Large firms as vehicles
      China: State-owned ent...
The Second-Mover industrial
    development model
             Second-Mover’s characteristics:
             • Enter market...
Patterns of Technological Development

PHASE I: INFRASTRUCTURE DEVELOPMENT FOR FDI
• Solicitation of FDI
• Creation of att...
Technological Capabilities and Industrialization –
        an assessment of the literature

 • Against production function...
Challenges [the UNIDO report is a
        good example]
 – East Asian crisis and exogenous shocks (open
   economies … tra...
Technological change and industrialization: a
    selective review of recent literature
  I. The Aggregate approach
  • Te...
Readings…
• All three papers.
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
Lecture 4 - Technological change and industrialisation
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Lecture 4 - Technological change and industrialisation

  1. 1. Lecture 4: Technological change and industrialization
  2. 2. Facts on technological change and Industrialization • The speed of the catching up • Trends in world trade • The highly concentrated benefits • The scale of restructuring • The complexity of industrial dynamics • Overall assessment
  3. 3. Periods during which output per capita doubled United Kingdom 1780-1838 United States 1839-1886 Japan 1885-1919 Turkey 1957-1977 Brazil 1961-1979 Rep. Of Korea 1966-1977 China 1977-1987 0 10 20 30 40 50 60
  4. 4. A Technology driven taxonomy of products • Primary products • Manufactured products – Resource based: e.g. food, wood & forestry products, processed minerals, petroleum products – Low technology: e.g. textiles, clothing, footwear, toys, sports goods, simple metal products – Medium technology: e.g. automotive products, TVs, machinery, chemicals, steel – High technology: Advanced ICT and electricals, pharmaceuticals, aerospace, precision instruments
  5. 5. Global exports are increasingly driven by innovation (annual growth rates, 1985-98) High tech Medium tech 1995-98 1990-95 1985-90 Low tech Resource based Primary -5 0 5 10 15 20
  6. 6. Manufactured exports by industrial and developing countries, 1985-98 60 25 Industrial 1985 Developing 1998 50 20 40 15 30 10 20 5 10 0 0 Primary RB LT MT HT Primary RB LT MT HT Rates of export growth, 1985-98 Developing world’s export shares
  7. 7. Only 12 countries account for 90% of developing world’s total manufactured exports ($ million) 180,000 1985 160,000 1998 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Taiwan Mexico H. Kong China Korea Singapore Malaysia Indonesia Thailand Philippines India Brazil
  8. 8. Technology upgrading is vital for success: shares of high/medium tech products in total 80 70 60 50 1985 1998 40 30 20 10 0 H.Kong Brazil Philippines Singapore Malaysia Korea China Argentina India Indonesia Mexico Taiwan Thailand
  9. 9. The key to Korean success: A national system of learning [taken from the Mathews book] Chart 5-1 Korea Strategic alliances TI Oki IGT NEC General Electric Intel Apple SGS Thomson Samsung Array Toshiba Microsystems Mitsubishi Micron Siemens Harris Microwave Metaflow Hitachi Motorola Semiconductor Fujitsu Micron AT&T TI (NCR) HEI Hyundai KSIA IBM LG Semicon Sundisk Maxtor Compass Image Quest Siemens Technologies Laser Byte BMI Compaq Rambus DNS Korea Dai Nippon Screen – Samsung LG Semicon - Monsanto Siltron Equipment and Suppliers POSCO Huls MEMC – Samsung/POSCO Dong Yang – Sumitomo Dongwu
  10. 10. The key to Taiwan success: A system of strategic alliances Chart 6-1 Taiwan strategic alliances Matsushita Altera (DRAM) NEC NKK WaferTech Analog Devices TSMC Philips Philips AMD ISS Fujitsu Toshiba MIPS MXIC WSMC SMS HP (PA-RISC) VLSI Toshiba (DRAM) TSIA TI Winbond (Micron) SST ASMI (flash) TEEMA IBM Symphony Lab ITRI/ C-Cube Oki ERSO Microsystems VSC Nan Ya Etron Oki IBM MV Cirrus Logic UMC UICC Xilinx Powerchip USC ISSI Siemens (Pro (UMAX) USIC Utek and others Mos) Mitsubishi
  11. 11. Industrial Policy in Developing Countries
  12. 12. Back to the 1970s - Technological change and industrialization • Embodied (and imported) technological change – Linked to fixed capital investment (which was considered as the driving force of development) – Then, emphasis shifted on investment decisions, relative prices and appropriate technologies – An interesting debate had emerged on the short-term cost of technological transactions
  13. 13. Back to the 1970s – Endogenous Technological in Developing Countries • Differences in the efficiency of process industry plants with similar technologies • Diverging industrialization trajectories • Insights from evolutionary thinking on knowledge accumulation [learning]
  14. 14. Different Types of ‘Innovation’/Technical Change 1. C ontinuous increm ental, engineering-based im provem ent: process technology, m ethods of organising production, diversification and upgrading in product specifications and designs, etc. 2. C ontinuous im provem ent in technologies linking stages in value chains: hardware (e.g. transport and com puter-based system s) and organisation/m anagem ent 3. Technology search (and research and training) for acquiring and absorbing technology 4. A cquisition of technology: m achinery and equipm ent, and in the designs and specifications of m aterials, products and com ponents 5. D esign, (reverse) engineering and project managem ent: for new production facilities, to diversify/upgrade products, or to source com ponents, m aterials and equipm ent from local suppliers 6. R esearch and developm ent, plus design and engineering: to introduce technologies that cannot be acquired (com petitively) from foreign sources, and for introducing new products and processes that perm it com petitive entry to dom estic or foreign m arkets independently of foreign technology sources.
  15. 15. How did Korea do it? Large firms (chaebol) as vehicles of developmental resource leverage Prior experience in mass manufacturing (eg electronics) Prior market entry contacts Prior OEM contractual links Leveraged access to product technology eg circuit designs from Silicon Valley Leveraged access to process technology eg US suppliers and Japanese engineers Leveraged access to strategic alliances
  16. 16. How did Taiwan do it? Taiwan -- started with smaller firms Utilized public sector research institutes eg ITRI Industrial Technology Research Institute Strategy of managed diffusion of technologies Foreign partners -> ITRI -> small Taiwan firms Use of innovative institutions, R&D alliances
  17. 17. Taiwan: IC related revenues: 1989- 1998 Starts at back-end of value chain, and moves forward 9 8 7 6 $US Billion 5 IC packaging 4 IC manufacturing 3 IC design 2 1 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Year Source: ERSO/ITRIS
  18. 18. How is China doing it? China is utilizing all three models: Model 1 Large firms as vehicles China: State-owned enterprises Model 2 Smaller firms plus public sector RIs China: Township enterprises; scientific research institutes Model 3 MNC-linkage China: Open door policy since 1978 Results: Developmental resource leverage through three avenues simultaneously “Walking on three legs”
  19. 19. The Second-Mover industrial development model Second-Mover’s characteristics: • Enter market when tech/products mature, which implies risk averseness. • Imitate, copy, incremental improvement, learning by doing. • Inherit first-mover’s accumulated capabilities, but usually exclude core technologies and competencies at initial stage. • Utilizing accumulated organization capabilities in order to upgrade and up-scale • Extract economic rent from scale efficiency, i.e. mass production to lower costs. • Advantage lies in technology know-how, manufacturing and project execution capabilities. Source: Amsden and Chu (2003)
  20. 20. Patterns of Technological Development PHASE I: INFRASTRUCTURE DEVELOPMENT FOR FDI • Solicitation of FDI • Creation of attractive investment and regulation regimes • Public investment on IT, energy and transportation infrastructures PHASE II: LOCAL CAPABILITIES AND TECHNOLOGY ACQUISITION • Offset policies for market access • Technology transfer and technology acquisition strategies • Expanded incentives to local producers • Incentives for increasing local value added PHASE III: INDIGENOUS R&D AND COMMERCIALISATION PROCESSES • Government funding of R&D • Investment in technology commercialization • Investment in higher education and human resources • Targeted promotion of innovation at the sectoral level
  21. 21. Technological Capabilities and Industrialization – an assessment of the literature • Against production function analysis [the TFP debate] • Qualitative methodologies and case studies • Definitions difficult to measure (and to compare) • Policy implications: from best practice to benchmarking (what is missing is: a) the micro-macro linkages, and b) the dynamic context.
  22. 22. Challenges [the UNIDO report is a good example] – East Asian crisis and exogenous shocks (open economies … transmission channels) – Diffusions of technologies, product cycles and production networks – The limited success of policy imitation – Phase III of technological development [the technological frontier] – Lack of criteria for allocation of resources – Dual production systems (informal sector vs. firms moving close to technological frontiers) – Findings from other streams of research
  23. 23. Technological change and industrialization: a selective review of recent literature I. The Aggregate approach • Technology=investment [the macro-view] • Human capital externalities • Co-ordination failures • Political economy considerations II. The Non-aggregate approach • Government failures – (intervention, lack of regulation) • Credit constraints • Insurance markets • Local externalities • Incomplete contracts, within generations and across generations • Social behaviour III. The Evolutionary approach • Technology gaps – [ trajectories explained by technology regimes, institutions and firms]
  24. 24. Readings… • All three papers.
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