We study how one-time subsidies for adoption of modern technology drove South Korea’s industrialization in the 1970s. Leveraging unique historical data, we provide causal evidence consistent with coordination failures: adoption improved adopters’ performance and generated local spillovers, with firms more likely to adopt when other local firms had already adopted. We incorporate these findings into a quantitative model, where the potential for multiple steady states depends on parameters mapped to the causal estimates. In our calibrated model, South Korea’s one-time subsidies shifted its economy to a more industrialized steady state, increasing heavy manufacturing’s GDP share by 8.6% and export intensity by 16.2%. Larger market access amplifies the effects of these subsidies, as the gains from adoption increase with firms’ scale.
STEG Working Paper Series
• Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy,
Research Theme 5: The Role of the Public Sector
From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries
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