Sources of Innovation in Developing Economies: Reflections on the Asian Experience

This article is concerned with the remarkable development of technological and economic capabilities by Korean and Taiwanese firms, particularly in electronics, and Indian firms in software and a few other fields. While the cases differ in many aspects, they all Involve active learning, in some cases through reverse engineering, requiring a considerable amount to technical and economic sophistication. All of them also involved selling on sophisticated markets which provided both feedback and pressure to learn rapidly and well. The cases teach us a lot about the mechanisms involved in successful technological and economic catch up.Keywords: Innovation. Catch-up, Developing countries. Korea. Taiwan, IndiaJEL Classification: 014. 089, 032, 034, 053I. IntroductionThe very term "technology transfer" makes the process sound deceptively easy. This has had the unfortunate effect, for many years, of leading to a neglect of the difficulties, often subtle and complex, associated with Introducing an old technology into a context that was substantially different from the economic and social context in which it originally developed. These transfers in fact involve substantial doses of entrepreneurship and therefore risk. I use the term "entrepreneurship" here in order to emphasize that such transfers have been full of uncertainties. These uncertainties are typically ignored in current approaches by economists of a neoclassical persuasion who treat the entire world as if everyone had equal access to all points on some pre-existing international production function. While there has indeed been a growing awareness, in recent years, of the difficulties attached to such an approach, it is also true that many of the technologies that are now undergoing transfer are far more complicated than those that were being transferred 30 or 40 years ago. One of the reasons for this is a very gratifying one: that several countries, mainly in east and southeast Asia, have achieved considerable success in industrial development and have thus moved well up on the scale of technological sophistication.These remarks already call attention to the dangers of sweeping generalizations. In discussing technology transfer it is essential to understand that technologies are enormously diverse from one sector of the economy to another, and changes in the patterns of industrial organization, including particularly changes in the division of labor among firms, may open up opportunities that did not previously exist. Indeed, the possibility of new economic opportunities thrown up by new international divisions of labor will be one of my central concerns. But the overriding concern of my paper is to enlarge the framework within which we think about technology transfer. Most especially, I am trying to identify new doorways through which LDCs (late developing countries) can obtain access to the benefits that can be made to flow from new technologies.I intend to focus on 3 countries that have had distinctly different experiences with the introduction of new technologies into their economies. Some of the contrasts between South Korea and Taiwan, on the one hand, and India on the other, are surely blatantly obvious. But it should also be said, at the outset, that although Korea and Taiwan have been outstanding success stories, some of their successes have been attained by travelling along distinctly different paths from one another. With respect to India, I have been driven by 2 very different concerns. First of all, India's huge size simply commands attention. The population of India passed the one billion mark not long ago; indeed, India has two states (Uttar Pradesh and Bihar) each of whose populations vastly exceed the combined populations of Korea and Taiwan. Moreover, a distressingly large percentage of the world's poorest people live in India. But, secondly, recent experiences on the Indian subcontinent suggest that the country may be in a position to make much more extensive utilization of technologies - technologies that may not be new to the world, but may hold out great promise in the changing Indian context. …