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Development of the IT Industry and Structural Transformation: Focused on the Russian IT Industry and Korea-Russia IT Cooperation economic development, economic cooperation

Author Minhyeon Jeong, Jiyoung Min, Dongyeon Jeong, and Sang Hwan Kim Series 20-02 Language Korean Date 2020.12.30

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   In this paper, we analyze the impact of IT sector innovation on the Russian economy in terms of structural transformation. Currently, Russia’s economy has a structural problem of excessive reliance on energy resources. Excessive economic dependence on the resource sector undermines sustainable growth, as the transition to medium and high value-added manufacturing is delayed, impeding qualitative growth through productivity enhancement, which is necessary for long-term growth. The Russian economy has been entrenched in the pattern of quantitative growth driven by physical capital and labor input since 2008.
   Chapter 2 of the study diagnoses delays in the structural transformation from a resource-dependent economy to a high value-added manufacturing one as a case of so-called “bad equilibrium” from the multiple equilibria perspective. In other words, the growth problem in the Russian economy is identified as a failure of coordination caused by the non-convexity of the production function.
   This research’s main contribution is to theoretically examine how technological innovation in the IT sector helps address the structural transformation delays that middle-income countries have suffered. This theoretical finding underlies the intuition that advances in IT technology positively improve productivity in the service industry, seen for instance in how online banking, e-commerce, and transportation services benefit from online matching. If such IT technology enhancements increase productivity in the service industry, the added value of IT industry production increases, which moves more economic resources (production factors) toward mid-and-high value-added manufacturing sectors, including the IT industry. Moreover, this structural transformation to the mid-and-high value-added manufacturing sector can be expedited by the substitution effect when the service sector’s productivity grows faster than the other sectors. Consequently, in the context of the so-called “big push theory,” IT technology innovation can function as a big push facilitating structural transformation in developing countries with abundant natural resources.
   Another contribution of this research is to investigate the possibility of IT cooperation between Korea and Russia in both policy and technological aspects. To this end, Chapter 4 performs a quantitative analysis with an ample dataset, including analysis of Russian IT patents, along with an extensive literature survey and reference. As a result, we found that both Korea and Russia share the same policy direction: they have exerted national policy efforts to discover new growth engines restoring growth potential through IT technology innovation. From a technological perspective, when we follow the common practice of categorizing the IT industry into the areas of IT hardware, software, and services, Korea has a clear-cut competitive edge in IT hardware while Russia is advanced in non-hardware sectors. This comparative advantage is prominent, particularly in the IT industry’s labor supply for both countries, namely competitive personnel in the areas of IT hardware and non-hardware for Korea and Russia, respectively.
   Taken together, the economic, policy, and technological conditions for IT technology cooperation between South Korea and Russia are all in place. Therefore, we can infer that voluntary and persistent IT technology cooperation between the private sectors of both countries can be guaranteed to some extent once the conditions for cooperation are established.

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