Johnathan Christensen and Dr. Daniel L. Nielson, Political Science
The original purpose of my research project was to apply a business theory to international trade to explain why the exports of the Asian Tigers were so successful. However, as I began writing on this topic during my capstone seminar, I learned of a striking empirical finding showing that while the growth rates of most poor countries have not caught up with rich countries over the last fifty years, the fastest growing economies always come from a subset among poor countries. Upon learning this, I soon realized that I wanted to expand my research question to explain the difference in the growth rates of GDP per capita among poor countries. What enables some poor countries to close the gap with the rich, while others remain poor? This was the question my research sought to resolve.
I first approached this question by reviewing the previous literature addressing economic growth. I discovered that among scholars today, opinions boil down into two main schools of thought. The first theory, espoused by most economists is called the endogeneous growth theory. The endogeneous growth theory posits that technological advantages allowed rich countries to continue experiencing increasing productivity and growth relative to poor countries. The second theory relates to governance and emphasizes the essential role of government institutions in providing fundamental incentives for growth within their countries.
Realizing that both of these development theories were not completely able to explain the difference in growth rates observed among poor countries, I hypothesized that something called technology absorption explained the variance. Technology absorption starts with the ability of a poor country to acquire advanced technology through trade and foreign investment with rich countries. Productivity improves if poor countries are then able to apply borrowed technology to their own industries. Additionally, copying, imitating, and making secondary innovations on borrowed technology allow poor countries to export them on the international market.
To test this hypothesis in my research, I used comparative case studies involving China and South Korea. Because both of these countries experienced changes in government policy that lead to varying levels of technology absorption, I evaluated the before and after results of the policies that lead to greater technology absorption, while holding other factors constant. Neither China nor South Korea experienced drastic swings in corruption, education, or culture during the time of policy transition. Thus, both cases make for ideal within-country comparisons. Additionally, because China and South Korea differ from each other in other important ways, like size and type of institution, comparing them to each other makes it possible to control for more factors. By resembling both the most-similar and the most-different designs, this set-up helps to control for a greater number of factors which may affect the dependent variable and helps to strengthen the methodology of the study.
In the case study on China, policy reform occurred around 1978, when the Communist Party of China (CPC) began opening up to trade. Therefore, I took the period of 1949, when the CPC took power, until 1978 to gauge the extent of development when technology absorption was not possible. I then took the period from 1978 to 2006 to begin examining the effects of technology absorption on development, after the reforms began in the 1970s.
The case study on China mostly confirmed what my hypothesis had predicted, especially in regard to productivity. Before 1978, technology absorption was virtually impossible in China. Except for guidance from Soviet technicians and engineers, all of the major channels for the inflow of technology into China were closed. Additionally, because centrally controlled prices and quotas stifled market competition and demand, poor coordination and application of innovation to industry followed. The low productivity that resulted during this period reflected an inability to apply technology to industry. Economic growth floundered as a result of the low productivity.
After the gradual economic liberalization of the early and mid 1980s, markets developed and market incentives induced greater competition and demand. Increased competition affected the behavior of the state run enterprises. Many closed and overall economic efficiency and productivity improved. To earn larger profits, industries sought to acquire and apply technology. Productivity increased across all sectors.
In South Korea, policy change occurred in 1961. Three important events prior to 1961 made South Korea a very unlikely candidate to become a future leader in advanced manufacturing. First, under Japanese occupation prior to World War II, most Koreans were illiterate, and very few received formal education beyond a secondary level. Second, when Korea was divided into a north and south in 1945 to protect the south from communism, the north retained most electric power supply, ore production, metal fabrication, and chemical production; the south was left with agriculture and textile industries. Thirdly, from 1950-1953 the Korean War ravaged what facilities South Korea did possess. Emerging from the war as an illiterate and subsistent agricultural economy, South Korea seemed unlikely to make quick progress. This all changed in 1961 when Park Chung Hee took power. He promoted technology absorption until Korean exports were able to compete on a global market. The country has flourished ever since.
One of the obstacles in completing this study was the difficulty to accurately measure the variables. One area that needs further research is to examine the variance in technology absorption. Why are some countries able to absorb technology and others are not?