The Optimal Structure of Technology Adoption and Creation: Basic Research vs. Development in view of Distance to Technological Frontier (in Korean)

This paper presents a theoretical model as well as empirical evidence for an observation that a country whose level of technology is close to the technological frontier tends to rely more on the creation of new technology than adoption, and to invest more in basic research than development. The model specifies that technological improvements are made through two different mechanisms: namely, technology adoption and technology creation. Each of them involves processes of both basic research and development research. The model gives the following results. First, the rate of growth is positively (negatively) correlated with the level of basic research activities in the technology creation sector (that of development research activities in the adoption sector), if one country's technology is close enough to the technological frontier. Second, an increase in the productivity of basic research in the creation sector will shift human capital out of development research and into basic research in this sector, and also out of the adoption sector into development research in the creation sector. Third, the level of basic research (both basic and development research) and the rate of growth will be increased, if the efficiency of the education system for highly skilled workers (skilled workers) rises. Empirical analyses using panel data of Korea, Japan, and Taiwan show that as they approach the technological frontier, the growth effect of basic R&D also rises, indicating that the share of basic R&D matters. We also find that in Korea the quality of tertiary education has a significantly positive effect on the productivity of R&D.