Catching-Up, Crisis and Industrial Upgrading : Evolutionary Aspects of Technological Learning in Korea's Electronics Industry

This paper addresses a puzzle related to catching-up: how is it possible that a country that has established a broad, export-oriented industrial base at record speed, remains vulnerable to the vicissitudes of international finance and currency markets? I argue that the Korean model that was tremendously successful during the catching-up phase, has now reached its limits for two reasons: it generates unsustainable high debt-equity ratios, and it is out of touch with current industrial upgrading requirements. The analysis centers on the co-evolution of industry structure and firm behavior. The focus is on the role of technological learning for the development of the electronics industry, a main carrier of Korea's successful late industrialization. It is shown that a heavy reliance on credit and an extremely unbalanced industry structure have given rise to a narrow knowledge base and a sticky pattern of specialization. Catching-up has focused on capacity and international market share expansion for homogeneous, mass-produced products such as TV sets. monitors, DRAM and displays (commodities); very little upgrading has occurred into higher-end and rapidly growing market segments for differentiated products and services that require flexible production (e.g., design-intensive ICs and computer products, software and Internet services). Such truncated upgrading is one important reason for Korea's vulnerability to the financial and currency crisis