This research project examines the current state of new knowledge creation from the perspective of global knowledge networks and analyzes the economic implications of participating in the so-called ‘innovation network.’ Policymakers have as a matter of course prioritized increasing their own country’s total R&D investment to advance technology and strengthen innovation. This research, however, asserts that in our current economic environment innovation cannot be achieved solely through the R&D of a single country, industry, or company. Policies must be formulated with the full understanding that innovation is shared and disseminated across borders—flowing from other countries and industries to new ones through various channels. For Korea, in particular, participating in these networks are critical.

Chapter 2 first lays out the background of our discussion. The theoretical model presented in the chapter highlights that in a closed economy, where all R&D is typically domestic, the impact of inefficient investment decisions is therefore relatively small. In an open economy, however, it warns that poor investment decisions have a much larger and more long-term negative implications on the entire economy. The model also points out a policy contradiction: despite arguing for the need to move toward the “global knowledge upstream,” supporting only “downstream” industries that yield immediate results is a short-sighted strategy. Against this backdrop, the theoretical discussion in Chapter 2 argues for two key policy directions: first, strengthening domestic R&D capabilities in the upstream of leading industries, and second, strengthening linkages with international, knowledge- leading countries and industries. This naturally leads to two critical questions: which future-oriented industries should we pursue, and with which countries must we strengthen our connectivity?

To answer the questions from Chapter 2, Chapter 3 first presents the “stylized facts” of the global innovation network. The presentation is categorized into five key areas: country-level centrality, the participation of major countries, shifts in citation relationships, the identification of leading technologies, and the patent activities of Korea and its firms, in particular.

Regarding the trends in technologies, it is noteworthy that the leading sectors within ICT are changing, while bio-healthcare and climate technologies are emerging as new leading sectors. Within ICT, the landscape has shifted over the past two decades: digital data processing (G06F) and digital information transmission (H04L) have become foundational. Conversely, the status of traditional manufacturing (Y10T) and older pictorial communication technologies (H04N) has relatively weakened. Also notable is the rapid advance of new leading sectors, including medical bio/healthcare (A61), climate technologies (Y02E), and specific ICT sub-fields like artificial intelligence (G06N, G06V) and data-based applications (G06Q).

Regarding the changing status of countries within the global innovation network, China’s rise since the mid-2010s is by far the most striking phenomenon. While the United States has maintained its leadership in the technology ecosystem, China is establishing itself as a major participant, transitioning from a “dependent chaser” to a “technologically self-reliant” economy. At the same time, a deepening of mutual interconnectedness between all countries also characterizes this shift. The innovation landscape, previously dominated by the United States and Japan, is now being reshaped by China’s emergence and the steady growth of Korea and European countries.

Chapter 3 also illustrates Korea’s evolving status within the innovation network. While a significant contribution gap remains compared to the United States or Japan, Korea has been advancing, surpassing Germany and the United Kingdom since the mid-to-late 2000s. Notably, in line with China’s own rise, Korea shows a trend of deepening technological ties with China, reflected in increased mutual citations.

Meanwhile, firm-level data reveal a unique shift in Korea’s patent network participation. The most conspicuous point is that Korean firms’ reliance on Japanese patents, which was overwhelmingly high in the 1990s, has been gradually decreasing. This decline was offset by an increase in citations of US firms in the early 2000s, and more recently, by a rapid increase in citations of Chinese firms since the early to mid-2010s. This evidence strongly suggests a structural change in the knowledge flow for Korean firms within the global innovation network. In terms of technology sectors, Korean patent applications are highly concentrated in semiconductors (H01L) and pictorial communication (H04N), a fact that closely aligns with the nation’s main export industries.

However, Korea’s patent trends appear to lag behind global innovation shifts. While applications in digital data processing (G06F) have risen rapidly since the 2010s, reflecting that global trend, Korea’s innovation status remains notably low in other booming sectors. Specifically, in the globally growing biomedical field, AI-based technology, and climate technology, Korea’s presence in the innovation network is not as high.

Regarding internal R&D activities, a positive correlation was confirmed between R&D expenditure and patent applications for active firms. Furthermore, a clear trend shows that innovation output, once dominated by large corporations, is increasingly shifting toward small and medium -sized enterprises.

The stylized facts from Chapter 3 naturally lead to two key questions. First, did participation in the innovation network and the expansion of citation linkages—a form of global knowledge sharing—actually contribute to new knowledge creation (i.e., new patent applications)? Second, did China’s rise within this network also benefit knowledge creation in other countries, such as Korea? These questions are addressed in Chapter 5.

Before the main analysis in Chapter 5, Chapter 4 investigates the impact of China’s rise on the global innovation network. It analyzes whether China’s emergence altered the network’s structure (specifically, inter-country citation proportions), when this impact occurred, and which policies were responsible. While China has a history of innovation -related policies, such as its 2008 “National IP Strategy,” the period around 2016—marked by “Made in China 2025” and the “13th Five -Year Plan”—is identified as a primary turning point. To verify this, the study analyzed the precise moment of a statistically significant shift by modeling patent citation shares with a Dirichlet distribution to detect a “change point.” The results show this structural change point aligns perfectly with the 2016 policy implementations. This alignment is strong evidence that China’s rise was not just a quantitative increase in patents, but rather a fundamental, policy- driven structural change described as a “realignment of influence.”

To answer the questions posed in Chapter 3, Chapter 5 analyzes the impact of global innovation network participation on the innovative performance (i.e., new patent applications) of firms worldwide. The analysis specifically segmented the impact of patents by the cited country—focusing on the US, China, and Japan—at the level of the citing firm. Building on the findings from Chapter 4, this chapter also focuses on the changes in China’s intellectual property systems after 2015. It provides a comparative analysis of how citing Chinese patents (or not) before and after 2016 affected the innovative performance of Korean firms. The results universally show that utilizing knowledge through the global innovation network contributes to increasing a firm’s total innovation output (the number of new patent applications). In an analysis that disaggregated the network by major countries to capture the specific effects on Korean firms, Japan was found to have the greatest positive impact on innovation performance, followed by the United States and China. However, as the stylized facts in Chapter 3 showed, the declining trend in citing Japanese patents must be carefully considered in policy discussions. Furthermore, regarding China’s rise in the global patent network and its growing contribution, Korean firms that cited Chinese patents showed a statistically significant increase in their total innovation output starting two years after the 2016 “change point,” compared to firms that did not. This suggests that China’s innovation-related “policy changes” are having a tangible impact within the network.

Chapter 5’s finding—that global innovation network linkages significantly impact national innovation and that China’s influence on Korean patents is rapidly growing—naturally leads to questions about a potential US-China fragmentation. Against the backdrop of expanding discourse on US-China decoupling since the 2010s, driven by geopolitical competition and the concept of economic security, Chapter 6 addresses this. It quantitatively analyzes what would happen if the US-China innovation network were exogenously and partially severed due to policy intentions. The analysis measures the effect on new knowledge creation not only in the US and China but also in closely linked countries (Korea, Japan, and the Rest of the World, primarily Europe). The results show that US-China fragmentation negatively impacts new knowledge creation for all participating countries. Crucially, this impact varies by time period, country, and technology. First, in all scenarios, the negative impact on US innovation performance is consistently the smallest. For other countries, however, the effects of fragmentation differ between 2010 and 2020. The negative impact on China, for instance, is smaller in the 2020 scenario than in 2010, suggesting that its strengthened domestic innovation capabilities have made it more resilient to external shocks. Conversely, the negative impact on Japan—a nation with a shifting status in the global network—appears to grow relatively larger over time.

In terms of technology, the field most affected by US-China fragmentation was telecommunications (H04), a sector with high influence across the entire network. Another interesting finding is that the specific fields impacted by this fragmentation have changed over time, reflecting evolving technology trends. For instance, the impact on medical fields (A61) has become much more pronounced in 2020 than in 2010; in particular, A61B (diagnosis, surgery, personal identification) was identified as the next most-affected field after telecommunications. Regarding Korea, the analysis suggests it has become relatively more resilient to the negative effects of US-China fragmentation over time, thanks to the strengthening of its own domestic innovation capabilities. However, a significant caveat remains: Korea’s innovation is highly concentrated in specific technologies. This means that if fragmentation were to target those particular fields, the impact on Korea’s new patent production would vary dramatically. It is crucial to note that if fragmentation occurs in areas where Korea has a strong leadership position—such as semiconductor-related technologies or image processing—the negative impact on the country would be disproportionately large.

Based on the analyses of this research project, Chapter 7 proposes a “Network-Linked Innovation Policies.” These directions can be viewed from three main perspectives:
1. Identifying Global Technology Trends and Strengthening Domestic Capabilities. The analyses clearly show that the global innovation network is driven by specific leading technologies, which change gradually over time. It also reveals that Korea tends to follow these global trends with a time lag. Policies must be data-driven to close this gap and set a forward-looking agenda.

2. Strategic Participation in and Utilization of the Global Innovation Network. A key factor in Korea’s rapid rise in innovation capacity was identified as its ability to effectively utilize accumulated foreign knowledge through the network, in addition to its own R&D. From a policy standpoint, Korea must identify which countries and which technologies offer the most beneficial cooperation for strengthening its innovation capabilities and then develop policies to support those linkages.

3. Contributing to Network Stabilization Through Global Cooperation. Although Korea’s innovation capabilities and its status within the global network are growing, the ultimate vision for a middle-power leading nation like Korea must be the stabilization of the overall rules-based international order. Especially in the current international trade environment, which is increasingly dominated by nation-centric policies, Korea must deeply consider what kind of international order it should pursue, with whom it should build it, and how.