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Koreas Transition to a Knowledge Based Economy Issues and Proposals

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Title: Koreas Transition to a Knowledge Based Economy Issues and Proposals


1
Koreas Transition to a Knowledge Based
Economy-Issues and Proposals
  • Sri-Ram Aiyer
  • Country Director, Korea Department
  • East Asia and Pacific Region
  • World Bank

2
KoreaPast Achievements
  • Korea achieved among fastest rates of economic
    development in the world.
  • Between 1966 and 1996 GDP grew at 7 pa
  • From below USD100 in 1960 to USD10,550 in 1997
  • Life expectancy now at 72 (OECD average 76)
  • Universal primary secondary education by 1990s
  • 1996 tertiary enrollment rate higher than most
    OECD countries.

3
Korea1997 Crisis and Recovery
  • December 1997 financial crisis - worst since
    Korean War
  • GDP shrank 6 in 1998, unemployment shot up from
    2.5 (3/97) to 8.6 (2/99)
  • Crisis ? serious deficiencies - weak financial
    system wasteful use of capital by over indebted
    chaebol excessive government intervention/regulat
    ion
  • GOK adopted for bold reforms towards market
    economy (supported by IMF, IBRD, ADB)
  • Reforms ? return of confidence
  • Remarkable recovery in 1999 10.7 GDP growth
  • Globalization and rising competition mean future
    growth will have to be based on efficient use of
    capital and human resources.

4
  • Transition to Knowledge Based Economy (KBE)

5
Transition to KBE (contd)
Background
  • GOK developing longer-term strategy for Koreas
    economic future in an increasingly globalized and
    competitive world.
  • Testimony of President Kim Dae-jungs vision that
    he has placed transition to KBE at the forefront
    of economic agenda.
  • Future growth will depend less on factor
    accumulation - that drove much of past growth-
    and a lot more on increases in productivity and
    competitiveness based on knowledge.
  • Korea is the only emerging economy that gives KBE
    such a prominent place in economic
    policy/strategy.

6
Transition to KBE (contd)
Good Basis
  • Korea has large reservoir of human skills and
    technical know-how.
  • It has made major advances in development/use of
    ICT.
  • Over 50 of households own PC, and over 50 of
    adults own mobile phones.
  • But evidence of digital divide is showing.
  • e.g. PC ownership in low-income homes with only
    30 percent
  • compared to over 80 percent among high-income
    households.

7
Transition to KBE (contd)
Needs Comprehensive Approach
  • Development of KBE not just matter of PCs, mobile
    phones, and fiber optics.
  • It requires a comprehensive, holistic framework,
    encompassing a range of policies and institutions
    beyond the immediate technological sphere
  • This is the central message of World Bank/OECD
    study on Koreas Transition to a Knowledge-Based
    Economy.

8
Emphasis on Four Elements of Challenge to
Develop KBE
  • Economic incentives and institutions that promote
    flexibility and entrepreneurship to create and
    make effective use of knowledge
  • ? Educated, skilled and creative people
  • ? A dynamic information infrastructure
  • ? An effective national innovation system

9
Policy Framework StretagyMain Messages
(1)Redefinition of the Role of Government
  • KBE, shift from emphasis on direct government
    interventions to provision of enabling
    environment for private sector initiative and
    activity
  • Governments new role emphasizes
  • Unleashing creative power of markets
  • Providing rule of law, transparency, information
    disclosure and accountability
  • Providing other public goods to build the modern
    infrastructure of KBEintellectual property
    rights, valuation of intangible assets, cyber
    laws, etc.
  • Addressing access and equity issues, to mitigate
    risks of digital divide

10
Policy Framework StrategyMain Messages
(2)Increased Internationalization
  • Korea needs to extend and deepen its
    international integration by
  • Tapping into global knowledge systems
  • Further opening up to foreign trade and
    investment
  • Linking with and drawing on global educational
    systems
  • Achieving harmonization in ICTs, besides
    liberalizing telecom service, unbundling local
    services and establish independent regulatory
    agency
  • Participating more actively in international fora
    and institutions (WTO, SIPO, ISO, OECD)

11
Policy Framework StrategyMain Messages (3)A
Systemic Approach
  • Transition to KBE calls for systemic approach to
    reform because of increased interactions among
    policies and actors across traditionally
    disparate areas of policymaking, and sectors.
  • Enhancement of knowledge by spurring innovations
    and their dissemination throughout the economy
    requires a conducive overarching economic policy
    and institutional regime. (e.g. competition
    policies, sound financial system able to respond
    to the financing needs of a dynamic economy, and
    flexible labor market)

12
Policy Framework StrategyMain Messages (4
(a))Radical Reforms in Education and Human
Resource Development
  • Human resource development is a fundamental
    enabler of KBE
  • The Korean educational system served the country
    well during the catch-up phase of
    industrialization, but now needs radical reforms
    to
  • Emphasize skills and creativity that foster
    innovation
  • Develop a system of life-long learning geared to
    the information age.

13
Policy Framework StrategyMain Messages (4 (b))
  • The Education System in Korea
  • Is of high quality in general and has many
    positives to be preserved
  • BUT higher education system needs deregulation
  • To allow more institutional autonomy to schools
  • To promote diversity and specialization in terms
    of programs and costs
  • Incentive for innovation and stronger university
    research capabilities
  • To promote more access for females to study
    high-tech subjects
  • In addition, systems are needed for lifelong
    learning
  • (e.g. distance education, vocational education)

14
Policy Framework StrategyMain Messages
(5)Implementation Strategy
  • Implementing major, interlinked reforms to
    promote KBE requires strategy with following
    elements (e.g. Canada, Finland, Ireland, Sweden,
    UK)
  • Buy-in from stakeholders and population at large
  • Coordination and setting of monitorable goals
  • Monitoring, evaluation and constant adjustment
  • Institutionalization of process to span
    successive elected governments.

15
Policy Framework StrategyMain Messages
(6)Infrastructure
  • Information infrastructure
  • (Under orchestration of development by MIC)
  • Liberalize telecom services, unbundle local loop
    services, set up independent regulatory agency,
    open to more FDI
  • Regulatory regime for telecoms - interconnection
    standards, service quality, auction spectrum
  • Legislation on regulation of e-commerce
    consistent with international standards

16
Policy Framework StrategyMain Messages
(7)Innovation System
  • ( Expenditures of 2.8 of GDP higher than most
    other OECD countries )
  • Focus on efficiency of resource allocation
  • Increase interaction between firms, universities,
    and GRI
  • Increase basic research effort (GRI or private)
  • Encourage more interaction with foreign counter
    parts.

17
Implications of e-Commerce
  • Technology enhances transparency - welcomed in
    the Korean context
  • Squeezes out inefficiencies - middle men
  • Redistribution of power to the buyer/consumer
    away from seller/producer

18
Economic Impact
  • Price clarity - Price transparency forces margins
    down
  • Competitive intensity should escalate as
    technological and regulatory barriers fall forces
    margins down, efficiency
  • Consumer empowerment
  • Mass customization
  • Cost reduction opportunities and threats abound
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