Local Innovation Activities and Regional Economic Growth

Abstract

Korea has achieved economic development through export-led growth model, but the values emphasizing equity were neglected while focusing on economic development. The government placed the necessary industry for export-led economic development in the metropolitan area and southeastern, and economic development of the region excluded from the policy was relatively slow. Awareness of the regional imbalances has been raised for a long time, the government's regional policy did not deviate from the suppression on the overcrowding Seoul metropolitan area. Korea has pursued regional policy as a reward for the shortsighted political and economic effects rather than raise the competitiveness of underdeveloped regions. In the 1990s, the government established a policy goal to strengthen the competitiveness of companies and to create an environment where businesses could grow constantly, and has been promoting the regional industrial policies according to the goal. Government has designed a variety of programs and invested for the expansion of the infrastructure for the industry. Moreover, the government has continued supporting businesses and led efforts to address the difficulties of the local enterprise. As a result, new industries began to appear and has driven economic growth of the region, also it made a steady growth of local companies. This report begins by expressing worries about whether the regional industry policy has made any contribution to the growth of local economies. The core of the study is an analysis of the discriminative growth of local companies belonging to representative industries, and the relationship between innovation and growth. First, this research selected three representative industries for every thirteen provinces. The selected industries were those that had led the local economy or that had had an opportunity to be a growth engine. The report compared the growth rate of subsidized firms with the growth rate of industry average. The significance level was 95%. It observed a high growth potential of supported firms compared to the overall industry average in eighteen industries. The government may continue on regional industrial development policy on the authority of this causal relation. The study defined and measured the innovation activities of local companies and attempted to understand the relationship between the performance of an enterprise and its innovation activities. First, the study set up four variables to measure the innovation of local companies. The ratio of R&D investment in R&D to total sales, the percentage of master's and doctoral degree holders in terms of R&D personnel, the number of patent applications and registrations, and the ratio of brand-new products to total sales were utilized in previous studies. The report also determined that these four innovation indicators could represent the innovation activities of local firms. The report analyzed the impact of the four innovation activities on the growth rates of companies. Each company's growth rate was defined as its average annual growth rate from 2009 to 2013. The study concluded that R&D investments have a causal effect on the company's growth rate in ten industries out of thirty-three. In other words, if the government can provide financial support and establish the infrastructure needed for the R&D activities of companies through a regional industrial policy, the growth rates of local companies would increase. The government can promote enterprises such that they can reach a stable position from which they can invest in the R&D process themselves. Though the importance of investment in R&D is widely accepted, many companies are hesitant to make investment decisions without the experience of successful R&D. A proper regional industry development policy can encourage firms to feel the positive effect of R&D on their performance and to decide upon supplementary investments, which would in turn boost the industrial eco-system. In a few cases, variables such as R&D manpower and new products also had a positive impact on business growth. Recruitment is one of the major problems facing local firms at present. The problem is severe when it comes to highly educated personnel. If a company has a advanced R&D staff, it would have more of an opportunity to develop new items and convert these developments into sales.