Development of the Semiconductor Industry in Korea: A Stepping Stone to Join the Ranks of Core Countries?

Abstract

The recent success of Korea's DRAM (dynamic random access memory, commonly known as memory chips) industry has been praised as an exemplary case of a developing economy breaking into a technology intensive and high value added industry. In world-systems theory, high value added production activities are generally concentrated in core countries (developed countries). Thus, successful development of core activities in such high-tech areas as semiconductors in Korea deserves careful attention in evaluating a developing economy's ability to move itself into a developed economy. The paper examines the strengths and limitations of Korea's semiconductor industry to assess its role in transforming the country from a semiperiphery state to a core state. Korea's large conglomerates, called chaebol, were able to get into the DRAM business successfully, thanks to a government policy that gave them lowered bankruptcy risks and higher expected returns on equity. However, given the DRAM industry's present structure in Korea, there is a question as to whether DRAM production in Korea can really be considered a core activity. The paper evaluates DRAM production in Korea in the context of world-systems theory that defines the characteristics of core activities as having: 1) high value added: 2) technology and skill intensity of production: 3) market segmentation that differentiates products from commodities: and 4) backward and forward linkages with local industries. The conclusion drawn from the analysis is that even though the value added from Korea's DRAM production is high at the moment, DRAMs are not a niche market product that have a price inelastic demand curve. With most inputs such as equipment and intermediate materials imported from abroad and the final products sold in the international market, there is an issue as to whether the DRAM production process is a truly technology and skill intensive activity. Also, with DRAMs not having close linkages with the local economy, they are not really conducive to creating the building blocks for flexible high-tech manufacturing districts, an industrial structure that Korea needs to emulate to make the transition from semiperiphery to core.