5

enter image description here

As of 2022, South Korea spends 4.930% of its GDP on R&D. The only country higher than South Korea is Israel.

What explains South Korea's high spending in this sector?

One explanation could be the North Korean threat.

However, does that solely justify the high spending?

6
  • 3
    There must be one nation that spends most on R&D. Why not South Korea. Maybe they simply like it. Also they are comparably small and the variance among smaller entities is always higher. Maybe compare South Korea with California or New York. Jul 22, 2023 at 16:25
  • 3
    It's an investment that makes it self-sufficient and helps it develop its economy. For example, South Korea is the only other country in Asia (apart from Taiwan) that can develop and manufacture high end computer chips on its own. Even India, Japan and China struggle here.
    – sfxedit
    Jul 22, 2023 at 20:33
  • 1
    It would be interesting (and more connected to politics) if public spending for R&D (I guess the tech giants are an important part of that spending) would be shown in the graph.
    – Alexei
    Jul 22, 2023 at 20:35
  • R&D of what? Is it just R&D in general or is it a specific area?
    – Joe W
    Jul 24, 2023 at 0:02
  • @JoeW, R&D in general.
    – user366312
    Jul 24, 2023 at 2:01

2 Answers 2

4

Why does South Korea spend so much money on R&D?

They don't. Anything as a percentage of GDP often isn't very meaningful. Countries with smaller GDP will appear to be spending "more" on just about everything because the denominator of the fraction is much smaller. (This is not to say that all of the percentages are larger, but that the percentages mask the small amounts in absolute monetary units.)

How much a "country" spends depends on how each relevant group allocates its budget. If South Korea happens to have a greater share of businesses that allocate more to R&D, the overall spending as a percentage of GDP will appear to be higher than countries with a greater share of businesses that allocate less to R&D.

The GDP of South Korea is worth about 1.7T USD, while the GDP of the US is 25.46T USD. The "huge" 4.93% that South Korea spends on R&D is worth 83.8B USD, while the "tiny" 2.711% on R&D spent in the US is worth over 8.5x as much, 717.3B USD.

Some sectors require more spending on R&D, while others require no R&D at all. According to South Korea GDP by Sector, about 29% of South Korea's GDP is in manufacturing. Meanwhile, the United States has only 11% in manufacturing, but 33.3% allocated to finance, insurance, real estate, and services. If R&D spending is adjusted for the size of the manufacturing industry, where the bulk of R&D spending is most likely occurring, South Korea has an adjusted R&D expenditure of 17%, while the US has an adjusted figure of 24.6%. While this could use refinement and is not a standard metric, it does indicate that South Korea could be under spending on R&D.

Some sources break GDP down into agriculture, industry, services. South Korea has 58.3% in services, while the United states has 80% in services. Using these values for adjustment, South Korea has an adjusted R&D spending rate of 11.8%, while the US adjusted rate is 13.55%. Although the disparity isn't as great, South Korean R&D spending is still shown lagging. South Korea's increased spending rates on R&D could be a correction for under spending.

Since the US is a much larger country, there is much greater variance across its territories. The NSF has State Indicators with a map of R&D as a Percentage of GDP for 2019. A few states spend a much greater share of their GPD on R&D than others. California is on the high side with 6.33% (227.9B), while New York is on the low side with 1.62% (33.2B). According to the Bureau of Economic Analysis, in 2022, the GDP of California was 3.6T USD, more than double that of South Korea. The GDP of New York was 2.05T USD. Manufacturing in California is 11.78%, close to the US average. Manufacturing in New York is 4.08%.

Now for fun, consider R&D spending from a few companies for the four quarters ending Mar 2023.

  • Apple is a US company reputed to be highly innovative. They spent 28.724B on R&D, which is about 10.5% of operating expenses.
  • Microsoft is a US company that has not been considered particularly innovative. They spent 27.3B on R&D, which amounts to 22.4% of operating expenses.
  • Samsung is a South Korean company reputed to have spent a great deal on R&D. They allocated 19.6B USD to R&D, about 11.6% of operating expenses. While Samsung spends more than Apple on R&D as a percentage of operating expenses, they spend far less, in both absolute and relative terms, than Microsoft despite having a higher overall budget.

As for Israel, its GDP (488.53B) is smaller than the combined operating expenses of the above companies (564.4B), and that "gigantic" 5.57% spending on R&D (27.2B) is smaller than the R&D budget of just one of the US companies. Israel defense spending does not help explain its R&D spending because defense spending is tiny in comparison, worth only 21.7M USD in 2021.

4
  • FWIW, Israel does have a large domestic defense industry to which it devotes a lot of R&D funds for national defense purposes, something that South Korea, which is also more militarized than many nations but has a much smaller domestic defense industry does not. The difference is because, at times, international sanctions have forced Israel to have to make many national security expenditures domestically, while South Korean was not subject to sanctions of this kind and so wasn't under the same pressure to develop military technologies domestically.
    – ohwilleke
    Jul 23, 2023 at 21:04
  • Countries with smaller GDP will appear to be spending "more" on just about everything because the denominator of the fraction is much smaller. This is wrong. For example New Zealand's denominator, would be used for NZ's priority items AND ALSO for NZ's non-priority items.
    – H2ONaCl
    Jul 24, 2023 at 5:27
  • "Countries with smaller GDP will appear to be spending "more" on just about everything because the denominator of the fraction is much smaller." - I don't follow. All the dollars that are spent are counted in the GDP, so the fractions can't all be bigger because they add up to 100%. Jul 24, 2023 at 10:19
  • Your assumption that manufactering should account for a large proportion of R&D doesn't quite work out. While some other areas like finance have much lower R&D precentages then manufactuering, others like software have much higher percetages. You can see that in your own examples, Californias high values for R&D does not come from manufactering but rather from the tech giants like Apple and Microsoft.
    – quarague
    Jul 25, 2023 at 12:43
2

Because that's their place in the global division of labour.

Costs of doing R&D can be recovered in a number of ways, which I guess happens in South Korea as well, for the most part. So you would expect that some countries will specialize in doing science, and even specific subsets of science.

Next question would be what countries have comparative advantage at doing science? You would expect to see East Asia in that list, obviously, but breaking it down:

It could be Taiwan, but it has taken an also quite significant role of world semiconductor foundry. Mainland China probably dwarfs everyone else by raw R&D spendings, but it is much less integrated into Western system of scientific research. South Korea is actually the most westernized CJK country which has adopted a large number of practices from the USA directly in the second half of XX century. Even Japan, who started on this route earlier, still is a bit of a thing-in-itself, culturally-wise. China and Japan, being larger countries, also will have larger share of "domestic science" - research in areas where they have unique expertise, which unfortunately leads to less visibility of such research from the outside.

Having comparative advantage allows one to reap unproportionally large benefits from it, due to economies of scale, network effects, and having the best offer on the market. That would explain why South Korea does not just have a slightly larger R&D spendings but significant head start.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .