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Postcrisis Growth and Development
amount, in heavy and chemical industries. Foreign capital financed 39 percent of this investment. Over the 1973–79 period, heavy and chemical industries accounted for 36.5 percent of facility investment in the manufacturing sector. Steel and petrochemical industries accounted for twothirds of the HCI investment (K. Kim 1988). Although capacity underutilization was a major problem at the end of the 1970s, the HCI drive built the foundation of many of Korea’s leading industries such as steel, shipbuilding, machinery, electronics, and petrochemicals. It greatly strengthened backward and forward linkages among these industries, as well as related industries such as automobiles, to increase the local content of exports. It also enabled Korea to develop its own defense industry. Last but not least, the HCI drive set the stage for Korea’s transition to an innovation-driven economy by expanding technical and engineering education and establishing a nucleus of R&D labs. Technology Absorption, Assimilation, and Innovation When Korea exploited its latent comparative advantage in labor-intensive industries in the early 1960s, it could readily import mature technologies embodied in machinery and equipment. As Korea subsequently sought to fill the missing links in the domestic value chain and move up the quality ladder, however, it had to adopt proactive technology acquisition strategies to indigenize intermediate inputs it imported. The relatively minor role of foreign direct investment in Korea’s industrialization meant that Korea had to acquire technologies through other means.28 Combining foreign and local technological elements, Korea progressively developed local capabilities (Dahlman, Ross-Larson, and Westphal 1985). Although technology acquisition strategies varied across industries, successful Korean companies systematically built their capabilities by absorbing, assimilating, and improving upon the acquired technologies.29 For example, Korean companies in light industries such as apparel and footwear initially acquired technologies through original equipment manufacturing (OEM) arrangements, as foreign OEM buyers provided everything from raw materials to design, production know-how, and quality control. Many Korean companies then moved on to original design manufacturing by mastering process engineering and detailed product design skills. Eventually, some companies successfully made a