Technical Progress Once Again Technical Progress Tech Progress

Technical Progress Once Again

Technical Progress • Tech. Progress is the rate at which the productivity of factors of production increases. • Long run growth is driven by tech. progress. • In the presence of fixed factors of production, decreasing returns to scale sets… => Solow Growth

Endogenous Growth • Constant returns permit “endogenous growth” theories that postulate diminishing returns (because of some nonaccumable factors of production) must ultimately rely on technical progress to generate growth.

Technological Progress and Human Decisions • R&D investments – innovation in the sense of applying scientific knowledge to the creation of more productive technologies. • Formal Education • On the job training – learning by doing

Technical Progress -1 • Process Innovation: Introduction of new methods to carry out the production or distribution of an existing product. • Product Innovation: Introduction of new products for production or consumption.

Technical Progress -2 • Diffusion of Technical Progress: Transfer of technical knowledge that occurs from the innovating firm to the rest of the world. – New technology may become known to outsiders, who can then profit from it directly, – New technology may lay down the groundwork for other innovative activity, not necessarily by the individiual or organisation that carried out the original innovation.

Diffusion of Technology • Process of diffusion of technology might itself spur more innovation, as techological leaders struggle to stay abreast of the competition from rivalts who pick up slightly older technology. • A Different argument about the diffusion of technology: – Technological transfers and externalities might slow down the rate of “deliberate” technical progress.