INNOVATION POLICY IN EAST ASIA

Abstract

The exceptional performance of the East Asian countries over the past three decades has generated extensive studies and debates over the causes of their dynamic development. Past literature had attributed this success to trade liberalization and exchange rate reform, to macroeconomic and industrial policies, and in recent studies, to technological innovation and human resource development.

However, as Lall (1990) concluded, 'it is not one set of policies that matters to the exclusion of others, but the complex interaction of incentives, endowments, institutions and technological efforts; success had depended on how (countries) combined incentives ensuing from trade and industrial policies with an adequate base of human capital, investments in technological learning and innovation, and institutions to overcome market failures in the technological system'. Hence, without technological and human resource development, East Asia's trade liberalization and industrial policies would not have been that successful.

Today, technology has been recognized as a major driving force behind industrial progress. It is more than just the 'A' term for the residual in the production function, but an endogenous factor in economic processes. An OECD (1992) report defined 'structural competitiveness' as 'the interactive nature of the innovation process, the systemic features of the technology, the learning processes associated with innovation, the vital importance of human capital, the significance of organizational and institutional factors in innovation and, of course, the central role of firms in competition.'

Developing countries recognize the importance of technology development and most have formulated a developmental blueprint for building up national innovative capability. Japan was the first of the East Asian countries to 'graduate', proving its success with rapid assimilation of western technology and development of its own formidable innovative capability. The newly industrializing economies (NIEs) of East Asia - the Republic of Korea, Singapore, and Taiwan, Republic of China (ROC) are fast going the way of Japan, followed by the East Asian LDCs, which are actively catching up by adopting various measures that had proven successful with the NIEs. Does this then imply that there may be an East Asian model to success?

In this study, it was noted that there is considerable diversity among the East Asian economies. While there are similarities in the development of technological capabilities among the East Asian economies, innovation policy differs from country to country depending on the stance of the government and the stage of technological development the country is in. While the development of innovative capability depends upon the conduciveness of environment and quality of human capital, it is found that the amount of effort put into R&D is still crucial, and may in fact offset adverse environmental factors.

This study focuses on selected East Asian countries, and in particular, emphasizes the effect of the government and its policies on the development of innovative capabilities in these countries. While not extensive, it is hoped that this study will provide a helpful background for further studies of East Asia's innovative policies.