From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries

EMPCT Working Paper Series No. 2026-05
92 pages | PDF Download | PDF in Browser

Citation
Choi, Jaedo & Younghun Shim, “From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries”, May 2026

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Abstract
When should policymakers transition from adoption-led to innovation-led growth? Using
South Korea’s historical technology-transfer data, we document three facts on adoption:
the advantage of backwardness, strategic pricing, and knowledge diffusion. We build
a two-country growth model consistent with these facts. As the gap narrows, productivity
gains from adoption diminish and adoption fees rise, eroding the effectiveness of
adoption subsidies. Adoption’s contribution to Korea’s TFP growth falls from 31% to 5%,
while innovation’s rises from 2% to 24% (1973–2023). Korea’s state-dependent shift from
adoption to innovation subsidies improved welfare by 6.2%. Initially higher tariffs further
raise welfare by lowering fees.