South Korea's R&D Success

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Posted on Jun 29, 2019

        For my Shiny App project, I decided to focus on the OECD's (the Organization for Economic Cooperation and Development) data set of Science and Technology indicators for R&D. This is a data set containing a lot of metrics about each country's performance based on different variables. They are broken down in to large general categories that describe different sectors that are influenced by R&D. They are listed below:

 

GBARD: Government Budget Allocation on Research & Development
BERD: Business Expenditure on Research & Development

 

        The app contains a lot of data and through exploring it I discovered the story of how South Korea managed to leverage a favorable trade balance into a massive growth in R&D research and it's return on the market. I encourage you to use the app to see why certain countries perform better than others and to investigate trends in the data linking back to real world events that the governments and economies are reacting to.

        For context, we'll start by looking at S. Korea's GDP versus similar sized economies (Mexico and Canada). We can see that S. Korea's GDP has increased by 28.13% between 2011 and 2017. This is an extremely high increase, only dwarfed by Israel (+42.66%) and China (+66.94%). We'll exclude them from our current investigation, since they both have other reasons for their recent explosive growth in GDP. For a brief aside, we can see that Israel's receives a large amount of support from other countries (% BERD financed by rest of the world in 2016 was 55.14%), as opposed to S. Korea which only had 1% of BERD financed by the rest of the world. This is an indicator that there is a large source of money coming from outside of the country that is helping the economy perform so well.

        China, on the other hand, has been experiencing an explosion in their GDP growth. This can be easily contributed to the integration of computerized devices into our daily lives. As more of the things around us become 'smart', the more demand there is for computer hardware that these things run on. We can view the trade balances of China to see that they have an extreme net positive regarding their trade balance across industries. I recommend that you play around with the app yourself and see just how much China is in the green on their balance sheets.

        However, the story we would like to tell right now is one about how R&D, supported both by businesses and the government, can lead to returns at the level of GDP. And for that, we return to S. Korea. We'll begin by looking at the percentage of BERD as a % of GDP versus BERD as a % of Value Added.

        We can see that the returns for the investment into BERD does in fact return a good evaluation in the market. But, this data isn't granular enough to see what is working out so well for South Korea. For that we need to look at what sectors of the S. Korean economy are doing well. By pulling up the percentages of BERD performed in each sector, we can see that South Korea's computer and optics industries performed more than half of BERD since 2013.

        And with a little bit of investigation we can see that this is due to large corporations like Samsung being headquartered in South Korea. Their success in the electronics market whether it be computers, smart phones, or (placeholder), is reflected in GDP and market of South Korea. But is their success story due entirely to them? We see in the following graph that South Korea heavily invests back into that market:

        This is corroborated with the fact that the two companies with the highest R&D subsidies from the government are given to Samsung and Hundai. So the South Korean government has taken a large share of the money generated from these companies to reinvest in them, creating growth. They produce more because they are able to spend more resources towards efforts to improve their products. We can see the success of this endeavor by looking at the trade balances in the computer and optics industry.

        We can see that this strategy seems to be very effective, netting South Korea an average of (VA of GDP number here) a year. In conclusion, we can see that business and government funded R&D are both important to supporting a strong company within an economy. I encourage you to look at my shiny app and come to your own conclusions about different factors in the market. Try to use the tool as a jumping off point--the visualization will show you things looking at just numbers would never let you see.

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