Building an Innovative Economy through Managed Creative Destruction: A Theory with Applications to South Korea
This paper presents a somewhat novel theory of innovation in the economy wide setting. The starting point for this theory is the creative destruction process at the firm and industry level. However, an extension to an economy wide setting requires the explicit theorization of the role of the state as well as an interacting nonlinear market process. The direction in which the theory leads is a complex interaction between state policies and market processes that influence the decisions taken by specific firms in particular areas of innovative activities. The key concept that is developed in this context can be called a Managed Creative Destruction(MCD) process. In a national (or regional) MCD, the creative destruction process characterizing innovation is structured more consciously by the state (or the states in a particular region). It can be argued that China is now going through this process. In this paper the particular case studied is South Korea's recent historical experience. Following Schumpeter we assume that innovation in specific firms can have economy-wide effects. Models based on this idea can be shown to have multiple equilibria. The idea of a positive feedback loop innovation system or POLIS is formalized by picking an appropriate sequence of equilibria over time. It is shown that POLIS has empirical relevance by applying the formal model to an actual economy. Recent financial crisis in many Asian countries, most notably South Korea, seems to have reversed the conventional wisdom regarding the East Asian “miracle”. This paper applies the concept of a POLIS to show that neither the current view that the miracle was a mirage nor the earlier contrarian view that the growth was a result of factor accumulation only is correct. Ultimately technological transformation — in particular the creation of a positive feedback loop innovation system is what makes the difference between sustained growth and gradual or sudden decline. Although various problems remain in both the real and the financial sectors, it will be premature to dismiss the impressive achievements and the future possibilities of the South Korean economy
|Date of creation:||2008|
|Date of revision:||2008|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May.
- Chang, Ha-Joon, 1993. "The Political Economy of Industrial Policy in Korea," Cambridge Journal of Economics, Oxford University Press, vol. 17(2), pages 131-57, June.
- Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
- Aghion, P. & Howitt, P., 1989.
"A Model Of Growth Through Creative Destruction,"
UWO Department of Economics Working Papers
8904, University of Western Ontario, Department of Economics.
- Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
- Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
- Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
- Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
- Michael J. Boskin & Lawrence J. Lau, 1990. "Post-War Economic Growth in the Group-of-Five Countries: A New Analysis," NBER Working Papers 3521, National Bureau of Economic Research, Inc.
- Gene M. Grossman & Elhanan Helpman, 1989.
"Quality Ladders in the Theory of Growth,"
NBER Working Papers
3099, National Bureau of Economic Research, Inc.
- Matsuyama, Kiminori, 1991.
"Increasing Returns, Industrialization, and Indeterminacy of Equilibrium,"
The Quarterly Journal of Economics,
MIT Press, vol. 106(2), pages 617-50, May.
- Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kim, Linsu, 1980. "Stages of development of industrial technology in a developing country: A model," Research Policy, Elsevier, vol. 9(3), pages 254-277, July.
- Pack, Howard & Westphal, Larry E., 1986. "Industrial strategy and technological change : Theory versus reality," Journal of Development Economics, Elsevier, vol. 22(1), pages 87-128, June.
- Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
- Romer, Paul M, 1986.
"Increasing Returns and Long-run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 94(5), pages 1002-37, October.
- Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
- Nelson, Richard R, 1973. "Recent Exercises in Growth Accounting: New Understanding or Dead End?," American Economic Review, American Economic Association, vol. 63(3), pages 462-68, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:7713. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.