Explaining technological catch-up in Asia

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  • This article was downloaded by: [McMaster University] On: 22 December 2014, At: 09:22 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Journal of the Asia Pacific Economy Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rjap20 Explaining technological catch-up in Asia Rajah Rasiah a , Yeo Lin b & Yuri Sadoi c a Faculty of Economics and Administration , University of Malaya , Kuala Lumpur, Malaysia b College of Public Administration and Industrial Development Research Centre , Zhejiang University , Hangzhou, Zhejiang Province, China c Faculty of Economics , Meijo University , Nagoya, Aichi, Japan Published online: 15 Jul 2010. To cite this article: Rajah Rasiah , Yeo Lin & Yuri Sadoi (2010) Explaining technological catch-up in Asia, Journal of the Asia Pacific Economy, 15:3, 221-224, DOI: 10.1080/13547860.2010.494897 To link to this article: http://dx.doi.org/10.1080/13547860.2010.494897 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http://www.tandfonline.com/page/terms- and-conditions http://www.tandfonline.com/loi/rjap20 http://www.tandfonline.com/action/showCitFormats?doi=10.1080/13547860.2010.494897 http://dx.doi.org/10.1080/13547860.2010.494897 http://www.tandfonline.com/page/terms-and-conditions http://www.tandfonline.com/page/terms-and-conditions
  • Journal of the Asia Pacific Economy Vol. 15, No. 3, August 2010, 221–224 Explaining technological catch-up in Asia Rajah Rasiah,a∗ Yeo Linb and Yuri Sadoic aFaculty of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia; bCollege of Public Administration and Industrial Development Research Centre, Zhejiang University, Hangzhou, Zhejiang Province, China; cFaculty of Economics, Meijo University, Nagoya, Aichi, Japan This paper provides the theoretical guide and introduction to a selected list of papers evaluating the drivers of technological catch-up experiences from Asia. It departs from neoclassical preoccupation with markets as the sole or dominant institution of economic allocation by arguing that the evidence supports the evolutionary logic of macro, meso and micro interactions between several institutions, depending on the actors involved, structural location and taxonomic and trajectory elements of technical change. Keywords: innovation; institutions; technology; catch-up; Asia JEL classifications: O13, O14, O33, O38 1. Introduction Asia has become the hotbed for the analysis of rapid economic growth and structural change experiences among the emerging economies since the 1980s. Korea, Taiwan, China, India and the Southeast Asian economies have increasingly driven developing Asia’s contribution to global gross domestic product. While the primary sectors of agriculture and mining have been important in a number of them, manufacturing has been the engine of growth and structural change. There has however been little consensus over the drivers of these processes of growth and structural change. Also, the pace of technical progress, industrial specialization and its consequent effects on gross domestic product has varied among the fast-growing Asian developing economies. This issue seeks to showcase the technological and economic catch-up experiences of selected firms and industries from Asia with a view to explaining the key drivers. The next section discusses the main arguments of the issue before the outline is presented in the final section. 2. The main arguments Standard neoclassical explanations of Asian industrialization success have been attributed to export growth, trade liberalization and increased focus on the private sector. Despite heavy use of industrial policies Korea, Singapore and Taiwan have generally been classi- fied by mainstream economists as liberal economies (Balassa 1982, Krueger 1997). The other high-performance economies of Asia have also been argued to have enjoyed rapid ∗Corresponding author. Email: rajah@um.edu.my ISSN: 1354-7860 print / 1469-9648 online C© 2010 Taylor & Francis DOI: 10.1080/13547860.2010.494897 http://www.informaworld.com D ow nl oa de d by [ M cM as te r U ni ve rs ity ] at 0 9: 22 2 2 D ec em be r 20 14
  • 222 R. Rasiah et al. growth following liberalization initiatives. China’s open-door policy since 1978, Malaysia’s return to liberal policies in 1986 following heavy industrialization initiatives in 1981–1985, Thailand’s and Indonesia’s liberalization efforts since 1986, Vietnam’s Doi Moi in 1989 and India’s liberalization since 1991 have been considered as watersheds in the advent of market forces and its positive role in transforming them into rapid developers. Whereas the World Bank (1993) for the first time conceded that the Northeast Asian economies of Korea and Taiwan had developed rapidly through interventions the conclusions simply dismissed their relevance, claiming that they were neither possible anymore because of the changed pressures in global markets nor worthy of the risks associated with government failure (Fishlow et al. 1994). Contrary to mainstream accounts, heterodox economists advocating industrial policy and catch-up argue that all latecomers have achieved rapid growth and improvements in living standards only through focusing on the increasing returns activities characterized by manufacturing. These accounts go back to Smith (1776), Hamilton (1791), List (1885), Young (1928), Gerschenkron (1962), Abramovitz (1956), Kaldor (1960, 1967), Johnson (1982), Amsden (1989), Wade (1990), Chang (2003) and Reinert (2007). Selective gov- ernment intervention to support firm-level technical change and competitiveness has been the critical explanation in these accounts. Whereas Marx and later Schumpeter focused on identifying technology as well as its differentiation into Department I and Department II (in the case of Marx) and Mark I and Mark II (in the case of Schumpeter) as the driver of growth, Nelson and Winter (1982) focused on the institutions that drive technical change (in- cluding incremental engineering and upgrading) and catch-up. Central to Nelson’s (2008) argument is that the evolutionary processes of technical change and the critical institu- tions that effect it not only are non-linear in nature but also vary with each different industry. Taken together, the papers in this issue seek to discuss important policy-relevant learning and innovation experiences from the rapidly growing Asian economies. Captured through Nelson’s (2008) evolutionary lenses, these experiences have been driven by on the one hand, a combination of, policy instruments by governments, flows of knowledge from multinationals directly (through foreign direct investment) and indirectly (through technol- ogy licensing and experiential knowledge gained by human capital) and, on the other hand, technological catch-up by industrial firms. Some of the firms from these economies have even become shapers of global technology – e.g. Samsung in dynamic random access mem- ories and Taiwan Semiconductor Manufacturing Corporation in logic circuits (see Mathews and Cho 2000, Rasiah et al. 2008, Lee and Mathews 2008). To provide a sufficiently broad coverage of the processes of catch-up and technological change, the issue addresses firm- level catch-up and leapfrogging issues as well as at both a more aggregate level and the firm level the interface between policy instruments and technological capability development. 3. Issue outline The case experiences were carefully selected from Asia on the basis of significance of particular industries to national growth, as well as at least some technological catch-up. Si Hyung Joo and Keun Lee discuss Korea’s Samsung’s catch-up strategies against Japan’s Sony. Yuri Sadoi examines the nature and extent of technology transfer from foreign to local firms in the automotive industry in Thailand. The remaining papers discuss the extent of learning, innovation and technological catch-up in the semiconductor industry in China and Taiwan, the software industry in Bangalore, the electronics industry in Malaysia, the automotive industry in Indonesia and the garment industry in Laos. D ow nl oa de d by [ M cM as te r U ni ve rs ity ] at 0 9: 22 2 2 D ec em be r 20 14
  • Journal of the Asia Pacific Economy 223 In this introductory paper, as guest editors we have provided the theoretical anchor for the evolutionary approach to examining technological catch-up. The six papers that follow underscore the view that technological catch-up is shaped by institutions and institutional change through conscious efforts at the macro government-policy level, the meso organiza- tional level and the micro firm level. The process of technological catch-up is thus uneven, varying with time and geographically with industries and institutions. The second paper by Rajah Rasiah, Xinxin Kong and Yeo Lin discusses how the initial incorporation in multinational value chains through direct operations in Taiwan in the 1960s and in China in the 1980s only transformed into the higher-value-added wafer fabrication and designing operations in semiconductor manufacturing when the government launched effective high-tech support through labs and design houses. As firms mature into higher-value-added wafer fabrication and designing activities, most of Taiwanese labour-intensive semiconductor assembly operations have been relocated to China and Southeast Asia. Because of its large population, semiconductor manufacturing and exports in China are still dominated by labour-intensive foreign-dominated assembly operations. However, local firms have increasingly increased their participation in wafer fabrication and design activities, suggesting that these set of local firms may be on the Taiwanese path of technological catch-up in semiconductor manufacturing. Balaji Parthasarathy argues in the third paper that industry must learn to deploy borrowed technology efficiently in production and compete internationally beyond the subsidies that states provide. This paper is particularly interesting from an evolutionary standpoint, as it provides evidence to show that the marginal cost of producing software is negligible from the outset, and hence lumpy investments and huge high-tech labs are not a necessary investment to promote software development. In the fourth paper, Si Hyung Joo and Keun Lee discuss Samsung Electronics’ techno- logical catch-up with Sony. Using the US patents of the two firms, the authors show that Samsung Electronics’ catch-up with Sony happened around the early 1990s in qualitative terms and mid-1990s in quantitative terms. In addition, Samsung Electronics has also be- come independent of Sony by producing novel knowledge, quickening the techno-cycles and knowledge appropriation. Rajah Rasiah and Abdusy Syakur Amin examine in the fifth paper the development of technological capabilities in local automotive parts firms’ vis-à-vis foreign firms, following increased liberalization from the late 1990s. The authors argue that there were no obvi- ous statistical differences in human resource and process technology capabilities between foreign and local firms in 2006. The empirical evidence they provide shows that local firms have invested more in research and development than foreign firms to compensate for the superior product technologies accessed by the foreign firms from their parent firms. Although foreign firms showed higher export intensities, the evidence they have amassed also shows that the liberalization experience has driven rather than discouraged stronger initiatives in local firms to raise technological capabilities. In the sixth paper, Rajah Rasiah examines the development of technological capabilities and economic performance in electronics firms in Malaysia. Although the evidence shows substantial improvement of technological capabilities in both electronics and the special- ized semiconductor firms, the incidence of participation of firms in the highest levels of knowledge-intensity activities was very low. The evidence also shows that technological deepening through increments in skills and research and development personnel will raise labour productivity in the industry. The final paper by Yuri Sadoi analyses the development of technological capabilities of engineers in automobile parts suppliers in Thailand. The evidence shows that Thailand’s D ow nl oa de d by [ M cM as te r U ni ve rs ity ] at 0 9: 22 2 2 D ec em be r 20 14
  • 224 R. Rasiah et al. latecomer firms accumulated their technology primarily from foreign direct investment, particularly from the Japanese car makers. Rising demand and competition have driven some amount of technological catch-up in the industry. To upgrade further the Thai automobile firms, government policy should focus on strengthening the automotive cluster by stepping up the supply of high-tech human capital to provide the technological deepening necessary for the suppliers to upgrade. References Abramovitz, M., 1956. Resources and output trends in the United States since 1870. NBER Occasional Papers, vol. 52. New York: National Bureau of Economic Research. Amsden, A., 1989. Asia’s next giant: South Korea and late industrialization. New York: Oxford University Press. Balassa, B., 1982. Development strategies in semi-industrial economies. Baltimore: Johns Hopkins University Press/World Bank. Chang, H.J., 2003. Kicking away the ladder: development strategy in historical perspective. London: Anthem Press. Fishlow, A., et al., 1994. Miracle or design: lessons from the east Asian experience. Washington DC: Overseas Development Council. Gerschenkron, A., 1962. Economic backwardness in historical perspective. Cambridge: Belknap Press. Hamilton, A., 1791. Report on manufactures [online]. Available from: http://www.oberlin.edu/∼ gkornbl/Hist258/ReportMfres.html [Accessed 13 December 2005]. Johnson, C., 1982. MITI and the Japanese miracle. Stanford, CA: Stanford University Press. Kaldor, N., 1960. Essays on economic stability and growth. London: Duckwroth. Kaldor, N., 1967. Strategic factors in economic growth. Ithaca, NY: Cornell University Press. Krueger, A., 1997. Trade policy and economic development: how we learn. American economic review, 87 (1), 1–22. Lee, K. and Mathews, J.A., 2008. Upgrading in the same industry and successive entries in new industries for sustained catchup: cases of Korean and Taiwanese firms. Paper presented at Catch- Up Workshop, Mexico-City, 20–21 September. List, F., 1885. The national system of political economy. London: Longmans, Green & Company. Mathews, J.A. and Cho, D.S., 2000. Tiger technology: the creation of a semiconductor industry in East Asia. Cambridge: Cambridge University Press. Nelson, R.R., 2008. Economic development from the perspective of evolutionary theory. Oxford development studies, 36 (1), 9–21. Nelson, R.R. and Winter, S.G., 1982. An evolutionary theory of economic change. Cambridge: Harvard University Press. Rasiah, R., et al., 2008. Variations in the catch up experiences of semiconductor firms in China, Korea, Malaysia and Taiwan. Paper presented at the 6th Globelics Conference, Mexico City, 22–24 September. Reinert, E., 2007. How rich countries got rich . . . and why poor countries stay poor. New York: Carroll & Graf. Smith, A., 1776. An inquiry into the nature and causes of the wealth of the nations. London: Strahan & Cadell. Wade, R., 1990. Governing the market: economic theory and the role of government in East Asian industrialization. Princeton, NJ: Princeton University Press. World Bank, 1993. The East Asian miracle. New York: Oxford University Press. Young, A., 1928. Increasing returns and economic progress. Economic journal, 38 (152), 527–542. D ow nl oa de d by [ M cM as te r U ni ve rs ity ] at 0 9: 22 2 2 D ec em be r 20 14