Imitation, Innovation and State Capacity: What Do East Asian Industrial Policies Imply?

Year 2020, Volume: 40 Issue: 2, 701 - 722, 31.12.2020

K. Ali Akkemik Murat Yülek

Abstract

Since the global financial crisis, industrial policy is back on the agenda in developing economies after a long break. The renewed interest in the industrial policy manifested itself in the discussions on the new directions for policymaking. A crucial aspect of the recent industrial policies is technology policies, in which the developing policies face the trade-off between imitation and innovation. In this study, we examine the association between industrial policy and state capacity based on a theoretical model. We elaborate on the successful interventionist industrial policies of the East Asian economies in the past in conjunction with state capacity and technology policies. As evidence from Korea, Singapore and Taiwan shows simultaneous implementation of imitation and innovation policies is possible. Recent experience in China further supports this conclusion. The results indicate that state capacity has played an important role in the success of East Asian industrial policies.

Keywords

Imitation, Innovation, State capacity, Industrial policy, East Asia

References

• Acemoglu, D., Aghion, P., & Zilibotti, F. (2003). Vertical integration and distance to frontier. Journal of the European Economic Association, 1(2-3), 630–638.
• Aiginger, K., & Rodrik, D. (2020). Rebirth of industrial policy and an agenda for the twenty-first century. Journal of Industry, Competition and Trade, 20, 189–207.
• Aizenman, J., Jinjarak, Y., & Zheng, H. (2018). Chinese outwards mercantilism: The art and practice of bundling. Journal of International Money and Finance, 86, 31–49.
• Akkemik, K. A. (2009). Industrial development in East Asia: A comparative look at Japan, Korea, Taiwan, and Singapore. World Scientific.
• Akkemik, K. A., & Menteşoğlu Tuncer, B. (2019). Çin-ABD ticaret savaşları gölgesinde Çin sanayi ve teknoloji politikaları [China’s Industry and Technology Policies in the Shadow of the ChinaUSA Trade Wars]. In C. Bakır & M. Yağcı (Eds.), Çin bilmecesi: Çin’in ekonomik yükselişi, uluslararası ilişkilerde dönüşüm ve Türkiye [China conundrum: The rise of China’s economic transformation in international relations and Turkeyy] (pp. 77–101). Koç University Press.
• Akkemik, K. A., & Yülek, M. (2020). ‘Made in China 2025’ and the recent industrial policy in China. In S. T. Otsubo & C. Otchia (Eds.), Designing integrated industrial policies: Industrial promotion for inclusive development under globalization (pp. 337–364). Routledge.
• Andreoni, A., & Chang, H. J. (2019). The political economy of industrial policy: Structural interdependencies, policy alignment and conflict management. Structural Change and Economic Dynamics, 48, 136–150.
• Amsden, A. (1989). Asia’s next giant: South Korea and late industrialization. Oxford University Press.
• Barwick, P. J., Kalouptsidi, M., & Zahur, N. B. (2019). China’s industrial policy: An empirical evaluation. National Bureau of Economic Research Working Paper No. 26075.
• Chang, H. J. (1993). The political economy of industrial Policy in Korea. Cambridge Journal of Economics, 17(2), 131–157.
• Chang, H. J. (2011). Industrial policy: Can we go beyond an unproductive confrontation? In J. Lin & B. Pleskovic (Eds.), Annual World Bank conference on development economics (pp. 83–109). World Bank.
• Chang, H. J., & Andreoni, A. (2020). Industrial policy in the 21st century. Development and Change, 51(2), 324–351.
• Chang, H. J., & Zach, K. (2018). Industrial development in Asia: Trends in Industrialization and industrial policy experiences of developing Asia. United Nations University WIDER Working Paper No. 2018/120.
• Cherif, R., & Hasanov, F. (2019). The return of the policy that shall not be named: Principles of industrial policy. IMF Working Paper No. WP/19/74.
• Fernández-Arias, E., Hausmann, R., & Panizza, U. (2020). Smart development banks. Journal of Industry, Competition and Trade, 20, 395–420.
• Gelb, A., Ramachandran, V., Meyer, C. J., Wadhwa, D., & Navis, K. (2020). Can Sub-Saharan Africa be a manufacturing destination? Labor costs, price levels, and the role of industrial policy. Journal of Industry, Competition and Trade, 20, 335–357.
• Heilmann, S., & Shih, L. (2013). The rise of industrial policy in China, 1978-2012. Harvard-Yenching Institute Working Paper.
• Hong, S. G. (1997). The political economy of industrial policy in East Asia: The semiconductor industry and South Korea. Edward Elgar.
• Jomo, K. S., Chung, C. Y., Folk, B. C., Ul-Haque, I., Phongpaichit, P., Simatupang, B., & Tateishi, M. (2019). Southeast Asia’s misunderstood miracle: Industrial policy and economic development in Thailand, Malaysia and Indonesia. Routledge.
• Khan, M. H., & Blankenburg, S. (2009). The political economy of industrial policy in Asia and Latin America. In M. Cimoli, G. Dosi, & J. E. Stiglitz (Eds.), Industrial policy and development: The political economy of capabilities accumulation (pp. 336–377). Oxford University Press.
• König, M., Song, Z., Storesletten, K., & Zilibotti, F. (2020). From imitation to innovation: Where is all that Chinese R&D going? National Bureau of Economic Research Working Paper No. 27404.
• Kurtz, M. J., & Schrank, A. (2007). Growth and governance: Models, measures, and mechanisms. Journal of Politics, 69(2), 538–554.
• Lin, J. Y., & Chang, H. J. (2009). Should industrial policy in developing countries conform to comparative advantage or defy it? Development Policy Review, 27(5), 483–502.
• Lin, J. Y., & Wang, Y. (2020). Structural change, industrial upgrading, and middle-income trap. Journal of Industry, Competition and Trade, 20, 359–394.
• Mazzucato, M. (2013). The entrepreneurial state: debunking the public vs. private myth in risk and innovation. Anthem Press.
• Mazzucato M., & Penna, C. C. R. (2016). Beyond market failures: The market creating and shaping roles of state investment banks. Journal of Economic Policy Reform, 19(4), 305–326. google scholar Olsson, O. (2012). Essentials of advanced macroeconomic theory. Routledge
• Otsubo, S. T., & Otchia, C. S. (2020). Designing integrated industrial policies volume II: For inclusive development in Africa and Asia. Routledge.
• Page, J., & Tarp, F. (Eds.). (2017). The practice of industrial policy: Government-business coordination in Africa and East Asia. Oxford University Press.
• Rodrik, D. (2016). Premature deindustrialization. Journal of Economic Growth, 21(1), 1–33.
• Romer, P. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94, 1002–1037.
• Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98, 71–102.
• Singh, J. N., & Ovadia, J. S. (2018). The theory and practice of building developmental states in the global south. Third World Quarterly, 39(6), 1033–1055.
• Stiglitz, J. E. (2017). Industrial policy, learning, and development. In J. Page & F. Tarp (Eds.), The practice of industrial policy: Government-business coordination in Africa and East Asia (pp. 23–39). Oxford University Press.
• Stiglitz, J. E., & Lin, J. Y. (Eds.) (2014). The industrial policy revolution, vol. 1: The role of government beyond ideology. Palgrave Macmillan.
• Wade, R. (1990). Governing the market: Economic theory and the role of government in East Asian industrialization. Princeton University Press.
• Wade, R. (2010). After the crisis: Industrial policy and the developmental state in low-income countries. Global Policy, 1(2), 150–161.
• Wade, R. (2015). The role of industrial policy in developing countries. In A. Calcagno, S. Dullien, A. Márquez-Velázquez, N. Maystre, & J. Priewe (Eds.), Rethinking development strategies after the financial crisis, volume I: making the case for policy space (pp. 67–79). UNCTAD and Hochschule für Technik und Wirtschaft Berlin.
• Wong, P. K. (2001). The role of state in Singapore’s industrial development. In P. K. Wong & C. Y. Ng (Eds.), Industrial policy, innovation and economic growth: The experience of Japan and the East Asian NIEs (pp. 503–579). Singapore University Press.
• Woo-Cumings, M. (Ed.). (1999). The developmental state. Cornell University Press.
• Wu, R. I., & Tseng, M. S. (1998). The development of the information industry in Taiwan. In K. Takahashi (Ed.), Asia’s development experiences: How internationally competitive manufacturing firms developed in Asia (pp. 76–124). FASID.
• Yülek, M. (2018). How nations succeed. Palgrave Macmillan.
• Yülek, M. A., Lee, K. H., Kim, J., & Park, D. (2020). State capacity and the role of industrial policy in automobile industry: A comparative analysis of Turkey and South Korea. Journal of Industry, Competition and Trade, 20, 307–331.