A Study on Interaction between Economic Openness and R&D Policies

This study discussed two issues. First, considering the interaction between eco-nomic openness and R&D investment, we investigated their effects on economic growth. Second, we analyzed R&D policy directions under the new international trade environments such as deepening trade liberalization, Korea's fast economic growth, and potential dispute under the WTO. There have been many studies that focus on the industrial policy and open economy policy as a major cause of rapid economic growth in the past Korean economy. However, the consideration of the interaction of both policies is not enough. In this study, we tried to present the direction of R&D policy corresponding to the new international trade environments based on understanding the interaction between the economic liberalization policy and R&D. The research on the interaction between economic liberalization policy and R&D is necessary not only to develop the direction of future R&D policies but also to derive policy recommendations to maximize the effects of R&D investment prior to further liberalization. Open economy policy has facilitated the quantitative growth by the expansion of export markets and led to its development by increased productivity through learning-by-doing technology adoptions, economies of scale, and technology spillover from advanced countries. In addition, R&D policies improve productivity with the development of new technologies as well as the improvement of the absorption capacity of the technology developed in other countries. Therefore, unless a comprehensive analysis takes into account the interaction of open economy policy and R&D policy, the effect of economic openness is likely to be overestimated as a factor of economic growth. Opening up the market does not promote the growth automatically. In addition, in order for the Korean government to properly respond to the rapidly changing international trade environment such as further trade liberalization with FTAs, Korea's tumbling economic growth, dispute possibilities through the WTO, the new R&D policy direction should be sought. FTAs have rapidly spread throughout the world, and the DDA negotiations and plurilateral agreements are expected to further promote trade liberalization. As for Korea, FTAs with U.S. and EU have already entered into force and FTA negotiations with major trading partners such as China and other emerging economies are underway. Trade liberalization of Korea will inevitably be even larger and deeper in coming years. Moreover, Korea, the seventh largest exporting country, competes intensively with major economies in the world market. This implies that Korea's R&D policy affects not only Korea's competitiveness but also other countries'. Therefore, from a global perspective, Korea should pursue a strategic R&D policy to conform to international norms by considering the trade friction with other WTO members.