For Africa, South Korea Sets a Knowledge-Economy Example

July 22, 2016Economic Systemsby Asia Pathways

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Lessons of a knowledge-economy learned in South Korea could touch Africa.

Twenty-first century competition is centered on the knowledge economy, with Europe and North America inexorably charting the course of development in the international arena. In calculated steps, Latin America and Asia have been asserting the need for enhanced knowledge economy strategies in their own pursuits of national and regional development. The historic pattern formulated by Japan has set the course for the People’s Republic of China (PRC), Malaysia, and the newly industrialized economies of Asia.

These nations have been witnessing a remarkable march from post-industrialization era product-based economies to knowledge-based economies. In essence, developing countries that have succeeded in making a development leap appear to have leveraged opportunities offered by the knowledge economy, and the Republic of Korea is a perfect example. Africa, instead, has been experiencing an overall fall in terms of the World Bank’s Knowledge Economy Index (KEI).

Africa: Lagging Behind

On average, Africa’s KEI has been low and falling since the beginning of the third millennium. If the continent has much to catch up on, this alone does not explain the current scenario. Countries like the Republic of Korea accomplished one of the most spectacular development miracles of the 20th century, transforming from a low-income nation in the 1950s to an industrialized economy by the turn of the century.

Yet, in the post-independence era, most countries on the continent were comparatively more developed than the Republic of Korea. Drawing on this reflection, broad consensus has emerged in academic and policy circles that (i) the Republic of Korea’s economic miracle has been centered on knowledge economy policies and (ii) African countries in their current pursuit of knowledge-based economies can learn valuable lessons from the Republic of Korea. A recent award-winning study (Asongu 2015) addresses this question by looking at patterns and trends in the KEI and its components.

Examining knowledge economy gaps

Using the four dimensions of the World Bank’s KEI from the World Development Indicators for the period 1996–2010, the study presents some knowledge economy lessons from the Republic of Korea for Africa. It examines knowledge economy gaps, diagnoses “policy syndromes,” and prescribes catch-up strategies.

The study used the Republic of Korea as the frontier or benchmark nation, decomposing 53 peripheral African countries into fundamental characteristics of wealth, legal origins, regional proximity, oil wealth, political stability, and landlockedness. The four components of the World Bank’s KEI used are education, innovation, information and communication technology (ICT), and economic incentives and institutional regime.

Diagnosing policy syndromes

A policy syndrome within the study’s context refers to the gap between the Republic of Korea and Africa in their knowledge economies, for a given knowledge economy dimension and a specific fundamental feature of African development. In other words, policy syndromes are negative tendencies of differences in knowledge economy dimensions between African peripheral countries and the frontier Republic of Korea economy.

Increasing differences in a given knowledge economy dimension denotes policy syndromes (PS) whereas decreasing differences reflect a syndrome-free (SF) tendency. Hence, PS represents higher deviations from the frontier or the Republic of Korea.

The table below shows the potential of this approach, with the left-hand-side showing PS (or panels with high differences) and the right-hand-side presenting SF (or panels with low differences). The need for more policy intervention decreases consistently from left to right. This analysis shows, for example, that landlockedness (LL), low income (Low I), and political instability (Con) are high PS fundamental characteristics with regard to the three top KEI components.

Policy Syndrome and Syndrome-Free Information Criteria

 

Con = conflict-affected countries, Eng = English common law countries, Frch = French civil law countries, ICT = information and communication technology, LL= landlocked countries, Low I = low-income countries, Mid I = middle-income countries, NA = North Africa, NCon = non-conflict-affected countries, NLL = not landlocked countries, NOil = non-petroleum exporting countries, Oil = petroleum exporting countries, SSA = sub-Saharan Africa.

So what?

The relevance of catch-up strategies increases with the importance of policy syndromes identified in the table above. The study suggests the importance of planning efforts on five different fronts as part of a coordinated knowledge economy catch-up strategy.

First, in education, African economies need to take bold steps on this front, including for example increasing college enrolment and the ratio of research and development (R&D) expenditure as a proportion of gross domestic product (GDP). For workers to cope with changing technological conditions, African governments also need to provide technical and vocational training as well as take the necessary steps toward encouraging training at workplaces. While the Republic of Korea continues to import a substantial portion of its technology from more advanced nations, it has developed a solid indigenous R&D platform, allocating about 3% of its GDP to R&D.

Second, in order to facilitate innovation, reverse engineering is preferable to investment in new commodities because the technologies on the continent are more imitative and adaptive in nature. Korean industrialization progressed from imitation to innovation. In the Republic of Korea, industrialization and education complemented one another to accelerate and sustain development: education produced technological learning and industrialization, and the latter boosted the return rate on educational investment, which further promoted demand for education.

Third, in the same vein, reverse engineering in ICT would consolidate the continent’s base in ICT, drive down the cost of technological acquisition, and reduce dependence on business operations. In essence, the Republic of Korea’s ICT success has hinged on the exercise of soundly integrated approaches entailing an industrial policy, an active informatization policy, and competitive and regulatory policies that are well enforced. Africa too can follow this path.

Fourth, the institutional regime of African economies can be consolidated, among other things, by supporting institutions to

(i) be market-focused with the adoption of a development strategy that completely liberates the competitive forces essential for the knowledge economy;

(ii) foster an industrialization strategy that is export-led, exposing African corporations to global competition and compelling domestic industries to invest in innovation and technology assimilation;

(iii) assert credibility in times of crises; and

(iv) co-opting elites to invest in long-term continental goals. The Republic of Korea’s leader Park’s pragmatic approach to thwarting elite corruption seems enlightened in retrospect. Instead of cracking down on them (and some businessmen), as the USA urged, he expropriated their bank shares and obliged them to invest in industries that encouraged import-substitution. The Korean government’s solution to its 1997 crisis sheds light on the advantages of having a credible institutional regime. The government was able to issue new bonds to finance reforms and increase its public debt because of its history of financial credibility and fiscal prudence.

Fifth, concerning economic incentives, whereas an extensive development strategy would expose African industries to more competition and hence induce intensive R&D programs, fiscal incentives from governments remain essential. Protectionist measures are only necessary at initial stages of development in a given industry and should be eventually curtailed to discourage complacency in innovation.

Moreover, incentives to private credit should be provided by African governments to reduce the substantially documented issues of surplus liquidity. This would stimulate private sector development and respond to the growing stream of literature on the need for investment in the continent. The Korean government’s research institutes helped small & medium-size enterprises (a sector with more risk or greater capital requirements), with new “know how” through collaborative R&D.

African governments can learn from the long-term fiscal prudence of the Korean government in establishing post-1997 reforms. Measures such as recapitalization of financial institutions, removal of non-performing loans, provision of financial support to low-income families, and creation of social programs such as unemployment insurance, helped boost the Korean economy.

Some knowledge economy lessons from the Republic of Korea for Africa is republished with permission from Asia Pathways