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The specialization of information and communication technology (ICT) industry can be assessed as the ratio of R&D expenditure of ICT industry to total business enterprise R&D (OECD, 2002). In South Korea, domestic R&D spending has steadily increased over time, most of which are occupied by the ICT industry. As of 2018, R&D spending for all industries reached 68,834.4 billion won, and R&D spending for ICT industries reached 40,220.2 billion won, which shows that R&D expenses for ICT industries account for more than 58 percent of overall R&D expenses (The Korean Ministry of Science and ICT, 2019) (see figure 1). As the importance of innovation in the ICT industry becoming further emphasized, the steady increase in R&D spending in the ICT industry is expected to continue in the future.
Figure 1.
R&D expenditure of ICT industry and overall industry in Korea
Large investments in the innovation of the ICT industry is not limited to Korea, but rather it is a worldwide phenomenon (Hunady et al., 2019). In the era of the Fourth Industrial Revolution, the importance of ICT industry is emphasized more than ever (Lee et al., 2019). ICT industry is a driver of economic development, affecting the entire industry and leading to innovation in the related industries (Xing et al., 2011; Li et al., 2018). Thus, when innovation in the ICT industry precedes innovation in any other industry, the entire economy can make great progress.
Because of the importance of ICT industry, being at the forefront of the development and innovation of ICT technology has been a major goal for the government (Gao et al., 2014). Thus, government policies, including regulations, should be set up to support successful innovation of ICT companies. However, even the same government regulations could support or deteriorate innovation depending on the circumstances (Wang and Dai, 2020; Seoh and Im, 2020). To properly support innovation in ICT industry, therefore, it should be preceded by an understanding of how each type of government regulation affects innovation in ICT firms.
Though the impact of government regulations on innovation performance has been actively studied, research on such impact on innovation in ICT industry has yet to be fully uncovered. Given that innovation should be measured as innovation efficiency rather than the performance itself because of the nature of innovation in which input does not guarantee output, moreover, the effect of government regulations on innovation efficiency is still unanswered. As an extension of the preceding studies on the relationship between government regulation and innovation performance, this study analyzes the effect of government regulations on innovation efficiency in ICT industry. Although the ICT industry includes both manufacturing and service industries (OECD, 2002), this study set the boundary to the service industry only (further discussed in section 3).