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Through an in-depth case study of the bicycle industry, this dissertation examines the claims of the developmental state thesis insofar as they pertain to the facilitating of industrial transformation in Taiwan and Korea. The bicycle industry has been chosen because it has the capacity to generate forward and backward linkages to the domestic societies, a capacity that development theorists consider to be an indicator of successful industrial development. I examine the developmental state thesis by investigating how firms compete internationally in the context of state-led export development as well as the conditions that permit upgrading, that is, those that make possible the transition to higher value-added economic activities. / This dissertation makes two principal claims: First, what is understood as the East Asian model in the current state-centric literature is really only the Korean model. I contend, however, that there are, in fact, two competing paths/models of East Asian development. Moreover, I argue that existing social structures deserve attention. I argue that the differences in social structures create different relational dynamics between the state and society despite the often-emphasized "state-autonomy" factor, and that they have given rise to the different industrial structures in the two countries studied. Second, the existing state-centric literature implicitly or explicitly infers that the Korean model, in which state and large corporations work closely together, is the key for future growth for late comers. Contrary to this view, I illustrate how upgrading is possible among small- and medium-sized enterprises in Taiwan under a relatively egalitarian system and a particular type of state-society relationship. The state, in this context, provides infrastructural support, which, I argue, is important for preserving horizontal cooperation among firms. This cooperation among firms encourages information and technology diffusion that flows through the economy and leads to the improvement of the social and economic well being of the whole society. On the other hand, the Korean case suggests that the power imbalance and over-dominance of an industrial structure by a few firms leads to a more predatory, vertical and dependent relationship between the large assemblers and smaller parts firms. The Korean policy of picking winners encourages the expansion of large business groups and a mass production system, which, in turn, prevent inter-firm cooperation. The system of the state-large corporation nexus has been effective in catching up in targeted sectors, but I contend that the upgrading does not cascade to other sectors. Moreover, the system has thwarted the development of entrepreneurship in the sector of small- and medium-sized enterprises.