Economic Development Chapter 8

The Role of Technology in Growth

Contents

The Nature of Technology Progress

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Incorporating Technology in Solow Model

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Introduction

Productivity Improvement

Introduction

The Nature of Technological Progress

Productivity Improvement

What is the role of technological progress?

Technology advancement plays important roles in economic growth.
Enable us to consume new goods and services Enhance productivity improvement Explain the gap difference in the levels of productivity

What is the role of technological progress?

How can technological progress improve productivity?
Imagine technology is something similar to software

Before of installation -Nothing change to production

After of installation
-Enhance productivity through increase of output Hence, improvement in technological change will enhance productivity >>> produce more outputs >>> affect economic growth

What is the role of technological progress? Cobb-Douglas

= 1

Y : output per worker A : productivity or technology K : physical capital per worker h : human capital per worker

How is technological creation?

Technological creation simply comes from investment refers to Research and Development (R&D). In the year 2005, U.S. devoted 2.5 % of its GDP to R&D on new creation: New knowledge, products, processes, methods, and systems

How is technological creation?

Put table 8.1 page 211 to show important of research and development The most important way in which government aids R&D; however, is by providing inventors with legal protection against the copying of their work, in form of patent.

Transfer of Technology

Technology VS conventional factors of productions Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from e, receives instruction himself without lessening mine; as he who lights a taper at mine, receives light without darkening me. Thomas Jefferson.

Determinants of Research and Development Spending

Most R&D are done by private firms. Shop-floor R&D

Determinants of Research and Development Spending

I.

Profit Consideration o o Invention leads to supernormal profits Produces the same products but lower price

Determinants of Research and Development Spending

I.

Profit Consideration
How much of an advantage a new invetion will confer

Size of the market

How long the advantage conferred by a new invention will last?

The uncertainty surrounding the research process

Determinants of Research and Development Spending

II.

Creative Destruction o Process by which new inventions create profits for firm, and these serve as the incentive to engage research ( Joseph Schumpeter ) o The double-edged nature of the process o Example : Luddites 19th century and Microsoft in 2000

INCORPORATING TECHNOLOGY IN SOLOW MODEL

Cobb-Douglas Production Function

Steady-State in Solow Model with Technological Progress

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