1. Lecture 4: Technological change
and industrialization

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. 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. 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. 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. 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

10. 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

11. 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

13. 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

14. 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

15. Industrial Policy in Developing Countries

19. 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

20. 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]

23. 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.

24. 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

25. 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

26. 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

27. 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”

28. 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)

29. 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

30. 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.

31. 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

32. 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]

33. Readings…
• All three papers.