This chapter redefines the Korean model of catch-up development, based on an evaluation of the existing theories. The “Korean miracle” happened not owing to any favorable initial conditions but rather in spite of several disadvantageous conditions. Moreover, overcoming these obstacles required government initiatives, including various forms of industrial policy. We also noted that inclusive institutions did not precede economic growth. Rather, capability building for economic growth proceeded under political authoritarianism, and the resulting economic growth at a later stage brought about political democracy. The two pillars of the Korean miracle were short-CTT sector specialization led by domestically owned and export-oriented conglomerates, in strategically navigating global–local interfaces. Longer-term evolution of Korea’s economic development has involved detours in two senses. First, it has been a detour from dominance by big businesses to decentralization alongside the emergence of SMEs. Second, it is a transition from short- to long-CTT sectors. In this sense, the Korean experience is an exemplary case of an innovation–development detour, namely a detour from short- to long-CTT specialization led initially by export-oriented, indigenous conglomerates, followed later by SMEs.

This chapter measures and analyzes the evolution and performance of the NIS of thirty-two economies. It identifies multiple pathways for achieving economic catch-up. The balanced catching-up NIS cluster includes Ireland, Spain, India, and Russia. The imbalanced catching-up NIS cluster includes the two Asian tigers of Korea and Taiwan and China. We also identify a third group, the trapped NIS cluster, consisting of economies perceived to be stuck in the MIT. The rapid economic catch-up of the countries in the imbalanced NIS group can be explained by the fact that these economies have increasingly specialized in short CTT, thereby increasing their respective levels of knowledge localization and technological diversification. In comparison, the alternative pathway of the balanced catching-up group shows that extreme specialization in either long- or short-CTT sectors is not always necessary for achieving a decent degree of technological diversification and decentralization. The imbalanced catching-up NIS is a detour that begins with short cycle and then makes a transition to long cycle, as well as a detour from big businesses to SMEs. This detour is necessary to circumvent entry barriers to high-end and value-added sectors.

This chapter elaborates the importance of local value added, knowledge, and ownership in latecomers’ catching up. The auto sector in Thailand, IT sector in Penang and mining sector in Chile show that reliance on foreign ownership is a recipe for limited domestic value added and innovation. Foreign MNCs source knowledge from R&D centers in headquarters and thus do not feel a need to cultivate R&D centers abroad. The eventual rise of local sources of knowledge and firms was possible owing to the involvement of the state in the various forms of industrial and innovation policies. In the most extreme cases, such as the palm oil sector in Malaysia, local ownership was obtained by hostile takeovers of foreign firms. In some cases, there were asymmetric regulations and promotion of indigenous firms over foreign firms, such as the auto sector in China. Promotion of locally owned firms and sectors goes together with discipline from global market competition, as seen from the failure of national cars in Malaysia. In sum, a common success formula is “learning from foreign sources at the initial stage, leading to the rise of local value added, knowledge, and ownership, owing to industrial policies under market discipline.”

For latecomer countries, one crucial decision is whether to follow the path of economic development traveled by rich countries or to seek out new trajectories. This book observes that latecomers do not always follow advanced countries’ paths; rather, they sometimes skip certain stages and even create their own paths by taking detours and pursuing leapfrogging. The need for detours arises due to the entry barriers, such as intellectual property rights restrictions, protectionist measures, and limited policy spaces under WTO. This book proposes an alternative to prevailing development thinking by focusing on nonlinearity and the multiplicity of pathways for latecomers. The book leaves several questions for future research, such as the rules and modus operandi of the government, and importance of initial conditions. Also, the political and economic power balance between global institutions and national actors determines the dynamics of global–local interfaces. This book does not engage much with the issue of sustainable development, but seeking alternative economic development strategies that produce fewer carbon emissions is consistent with the idea of nonlinearity and the multiplicity of developmental trajectories.

The role of government should not decrease in a linear fashion but rather must increase at the upper middle-income stage. Economic growth at the low-income stage follows a country’s comparative advantages and does not require considerable direct government intervention. Upgrading to enter high value-added sectors may require more direct intervention by the government, such as public–private R&D consortiums, because firms at this stage face increased difficulty in terms of entry barriers, IPR disputes, and technology transfers. To overcome the challenge of strategically managing global–local interfaces, two modes of government involvement are possible. The slow but steady mode of catch-up corresponds to the case of the IT cluster in Penang, Malaysia, and the auto industry in Thailand, where the main focus of public intervention was on re-skilling and up-skilling local labor forces. The faster mode of catch-up more closely corresponds to the situation of Shenzhen and the Chinese auto sector where asymmetric intervention was mobilized to foster domestically owned firms. A final question addressed by this chapter is how to generate big businesses as an engine for growth beyond the middle-income stage, as well as how to promote the coevolution of big businesses and SMEs.

This chapter first addresses the question of whether latecomer firms will catch up with and eventually overtake the incumbent by merely imitating the incumbent or by initiating innovation different from those of incumbents. Section 3 deals with the coevolution of firms and surrounding institutions in the context of post-reform China where firms with diverse ownership have emerged. Productivity of locally owned enterprises is shown to eventually catch up with foreign-owned enterprises, because institutions developing over time were better exploited by the former than the latter. It suggests that private firms cannot prosper without sound institutions, and institutional development may be useless unless there are private firms that can benefit from this institutional development. Section 4 will elaborate the case of one region, Hsinchu City, in Taiwan to show that its long-term trajectory of upgrading is driven by the rise of a leading big business, namely TSMC. The final section finds that the behavior of Korean firms earlier corresponded with that of typical catching-up firms (e.g., prioritizing growth over profitability, borrowing and investing more, and specializing in short-cycle technologies) but currently show radical changes in their behavioral pattern to show signs of convergence toward the behavior of mature firms in the US.

This book explores the coevolution of firms, sectors, regions, and national economies in the Global South and explains their economic performance as a dynamic outcome of interactions between the multiple levels of innovation systems. This book counters prevailing views on economic development and offers a unique contribution to the literature on economic catch-up. Whereas the traditional linear view of development has taken a “more is better” approach, this book advocates that latecomers should pursue detours or leapfrogging, which conforms with a “less is better” approach. Instead of the conventional prioritization of manufacturing, this book proposes prioritizing domestic ownership and knowledge in specific sectors and regions and asserts that no country has successfully developed a high-income economy without generating a certain number of globally recognized big businesses. Instead of placing priority on free markets as the Washington Consensus does, this book argues that economic catch-up is only possible with active and planned government interventions, which are needed to overcome latecomers’ disadvantages regarding barriers to entry at the middle-income stage.