Technological progress is made possible by domestic R&D activities, imports of capital goods that embody advanced technologies, acquisition of foreign technologies, or knowledge transfer through foreign direct investments (FDIs, inward or outward). In addition, exporters from developing countries can gain knowledge of product development, manufacturing, marketing, and other modern practices in advanced countries. The knowledge gained by exporting is subsequently disseminated to other parts of the economy, leaving positive externalities. International trade also strengthens the incentive of firms to innovate by increasing the market size and enhancing the competitive pressure.
All of these factors, except perhaps FDIs, must have played an important role in Korea.
Domestic R&D activities surged in the 1980s as the private R&D spending increased rapidly in response to the intensifying competition at home and abroad (Figure 3-8). The current level of total R&D spending (3.4 percent of GDP in 2008) is among the highest in the world. Since the 1960s, imports have been dominated by raw materials and capital goods.
Figure 3-8. R&D expenditure
In 2000, for example, imports of capital goods for domestic use corresponded to 57 percent of facilities investment (Table 3-6). The payment of royalties and license fees, one measure of technology acquisition, has been increasing over time, reaching 0.8 percent of GDP in 2009 (Figure 3-9).
Table 3-6. Imports by commodity group
Figure 3-9. Royalties and license fees
Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.