Economic Theory & Research; Water and Industry; Knowledge for Development; Labor Policies; E-Business
East Asia and Pacific; South Asia; Latin America & Caribbean
Summary: This paper tests a neo-Schumpeterian model with industry-level data to analyze how Brazil, India, and China are catching up with South Koreas technological frontier in a globalized world. The paper validates Aghion et al.s inverted-U hypothesis that industries that are closer to the technological frontier innovate to escape competition while longer distances discourage innovating. It suggests that for effective catching up, distance-shortening (or innovation-enhancing) policies may be a necessary complement to liberalization. South Korea and China combined a variety of distance-shortening policies with financial subsidies to promote high tech industries and an export-led growth strategy. Post-liberalization, they leveraged swift competition to spur catch-up. In comparison, Brazil, which was as rich as South Korea, and India, which was as rich as China in 1980, are catching up more slowly. Import-substitution industrialization strategies saddled Brazil and India with a large anti-export bias, and unfocused attention to innovation-enhancing policies dampened global competitiveness. Post liberalization, many of their industries were too far behind the technological frontier to effectively benefit from competition. The catch-up experiences of Brazil, India, and China with South Korea illustrate that distance from the technological frontier matters and that the design of country-specific distance- shortening policies can be an important complement to trade liberalization in promoting catching up with richer countries.
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