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  • Energy Market Integration in East Asia: Schumpeterian Analysis of Economic Catch-up: Knowledge, Path-Creation, and the Middle-Income Trap by Keun Lee
  • Cassey Lee
Energy Market Integration in East Asia: Schumpeterian Analysis of Economic Catch-up: Knowledge, Path-Creation, and the Middle-Income Trap. By Keun Lee. Cambridge: Cambridge University Press, 2013. Pp. 294.

The “middle-income trap” continues to fascinate scholars and policy-makers in Southeast Asia. Generally, it refers to a situation where countries are “trapped” at the middle-income level, facing difficulties in developing into high-income economies. Thus far, the usual suspects for the middle-income trap — identified from endogenous growth models — include the lack of human capital and technological innovation. The policy prescriptions are usually mundane — improve the quality of human capital and increase research and development (R&D) expenditures. Somehow, one feels that such policy recommendations are too generic. Despite this knowledge about the drivers [End Page 290] of economic growth, why is the middle-income trap still a real and great concern in many middle-income countries? Could it be that there are other factors crucial for countries to graduate into high-income levels?

At the heart of Kuen Lee’s book is a Schumpeterian view of how middle-income countries can catch up to their higher income brethren. Its Schumpeterian genealogy comes from the “creative destruction” aspect of capitalism that drives economic growth, where new technologies emerge to replace old ones. In the book, Lee focuses on the cycle-time within the creative-destruction process and argues that the key to catching up is through the adoption of technologies with short cycle-times (of around 5.5 to 6.0 years). This essentially enables firms to leapfrog into new markets where it can compete with more established firms on an equal footing at the very least. This view, though seemingly commonsensical, is actually a relatively non-conventional view in some quarters. Conventional perspectives recommend that countries specialize in goods and services in which they have a comparative advantage. Often, this would entail producing goods with less advanced technologies obtained from high-income countries à la Raymond Vernon’s life cycle theory. The emphasis on shorter cycle-time technologies has other implications worth noting. With this strategy, firms are likely to depend less on external (to the firm and country) technologies. Lee also argues that this is more likely to take place with domestic firms rather than through a continued reliance on multinational enterprises.

Another important argument that Lee makes is the importance of technological capabilities, which is related to the notion of absorptive capabilities in the existing literature. Without such capabilities, firms (and countries) will fail to capitalize on the window of opportunities associated with new markets, which are based on newly emerged short cycle-time technologies. In such cases, as Lee argues, these short cycle-times can become an obstacle to learning and catching up. This is a direct link to the human capital element in conventional growth models. The possibility of a “capability failure” on the part of middle-income countries leads Lee to discuss how domestic technological capabilities evolve as countries develop them. The experience of South Korea and Taiwan suggest that firms are likely to evolve from being dependent on foreign technology (original equipment manufacturing) to becoming increasingly independent (own design manufacturing and own brand manufacturing). Interestingly, the experiences of these countries suggest that the upgrading of technological capabilities could be driven by adverse market conditions, such as expensive technological inputs. From a policy perspective, there is much that governments can and should do to encourage and facilitate firm entry into markets with short cycle-time technologies. On the whole, Lee argues that the state has an extensive role in the catch-up process in areas such as education, public-private R&D consortia, standardization policies, procurement, user subsidies, and even import protection.

Overall, the book offers a number of insights that genuinely enriches and advances the literature on innovation, economic growth and the middle-income trap. Lee has gathered his empirical evidence mainly from the experiences of two East Asian countries that have escaped the middle-income trap — South Korea and Taiwan. This has been...

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Additional Information

ISSN
2339-5206
Print ISSN
2339-5095
Pages
pp. 290-292
Launched on MUSE
2015-08-29
Open Access
No
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