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Fridays Academy: Technology and Growth

Ignacio Hernandez's picture

This week we start a new series on "Understanding Growth and Poverty". In upcoming Fridays we will be looking at issues such as technology, urbanization, corruption and others, and at how they relate with growth and poverty. As usual, based on Raj Nallari and Breda Griffith's lecture notes.

 

Technology and Growth

Over six decades of empirical evidence, particularly from developing countries, indicate that total factor productivity (defined as output produced per worker or per unit cost or time) with increasing returns to technology is more important for competitiveness and growth than physical capital and human capital accumulation.  However, the definition of technology varies in studies done so far, and economists are still unsure about which national policies and institutions enhance the efficiency of physical and human capital, and drive the accumulation of knowledge and use of new technologies. In this and upcoming posts we will focus on the key issue of whether the adoption of technology brings about income growth, employment and productivity.   There is some evidence to suggest that physical capital is important at early stages of development (low income countries), human capital at middle income level, and new ideas and technological inventions and innovations for advanced countries.   Does rapid technological change lead to job insecurity and job losses as a result of job skills becoming obsolete?

 

What is Technology?

Technology is usually thought of as a process of invention, innovation, development and diffusion/adoption (also called knowledge for development).  Organizational structure, management skills and culture, including social organizations, are also considered part of technology.  Technological inventions and innovations appear to be random over history and, as such, are extremely unpredictable (e.g. which research is relevant and for what is not usually known) and therefore the time path of technological change is uncertain.  Also, the interactions of various components of technology with growth process are different.  Most growth is attributed to exogenous technological change while some of the recent research, particularly by Dale Jorgenson (1996) who treats technology as knowledge, indicates that improvements in measures of physical and human capital can reduce the importance of innovation and knowledge-based spillovers in explaining growth.   In contrast, some economists believe that the knowledge that leads to technological advance differs from physical and human capital as investors cannot fully internalize the benefits from accumulating knowledge (i.e. spillovers from private investment in knowledge).  Rate of accumulation of knowledge is an important factor in growth process even with modest spillover effects.

 

Next Friday: Spending on Research and Development    

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