Technology Change and Economic Growth
There exist major differences between the neoclassical and structural evolutionary theories of economic growth. In the broader level, the evolutionary economic theory is different from the neoclassical theory because the neoclassical theory dominates the microeconomic theorization while evolutionary theory observes economy as a process of change, in which economic activities proceed in the contexts of different actors. In contrast, the neoclassical theory states that the economy is usually at rest or changing within expected changes. The perception of economic activities creates an economic perspective on the interpretations of the different theories (Tidd, & Bessant, 2011). In addition, the rationality of the factors in the evolutionary economic theory is bound and thus, their contexts cannot be understood well. On the other hand, the neoclassical factors can be well understood with their capability to innovate new products and services. Another difference is in the economic behavior, as the neoclassical theory proposes that economic performance should be determined through a theoretical optimum, the evolutionary theory argues there is no theoretical optimum. Therefore, there are major differences between the neoclassical and evolutionary economic theories.
The long-run implication of the neoclassical growth model follows the assumptions of constant returns to scale, diminishing marginal productivity, exogenous production, and lack of an independent investment function. The long-run implications of the model are determined by the exogenous technological improvements that lower the marginal productivity of capital. The long-run effects in Neoclassical are obtained under a constant population growth rate that influences the per-capita income levels. In contrast, the long-run implications of the evolutionary theories provide of the aggregate time-series output measured under the GNP and aggregate inputs such as labor and human capital (Tidd, & Bessant, 2011). The two approaches have their policy implications that include the evolutionary theory emphasizing the coevoluation of technologies among different firms and industry structures. While Neoclassical growth model focuses on the long-term factors of growth that include population growth. It relies on the Solow growth model to identify the relationship between capital accumulation, growth, and improvements through advanced technology in the economy (Liu, & Premus, 2000).
The equation for long run Solow model
Fig 1: Different Growth Potential under Neoclassical Growth model
The industrial revolution started in Great Britain in the late 1890s. The industrials revolution started in Britain because they had a powerful military and economic support. They also had strong commercial and technological resources compared to other countries. The country had unique factors that allowed for the occurrence of the industrial revolution. The various factors influence population growth, financial innovations, and agriculture relations. The economy had relevant financial innovations, and navigable rivers and channels to support economic growth. The cottage industry and textile inventions are among the industries that propelled the industrial revolution in Great Britain. Other countries lacked good infrastructures, infrastructures, and innovations to support the industrial revolution.
In order for the current economies to develop, they should develop relevant economies to foster development. World trade allows for the countries to access raw materials and goods for their markets. World trade is relevant for rapid economic growth among the economies across the world. In addition, the governments must develop the relevant property and commercial policies that enhance innovation and the spread of global trade. The policies include patent laws that promote the concepts of intellectual property among various innovations in the countries. This, the expansions of the global markets relies on the expansions of the trades and strong protection from monopolies (Liu, & Premus, 2000). Most importantly, financial innovations that include central banks and stock markets and the development of infrastructure are key in current economic development among different countries.
Technological complementarity identifies the increased innovations and increased technology industries in order to expand their resources and capabilities among various mergers and acquisitions. In the late, 20 century, many companies have come out under various mergers and acquisitions to acquire new knowledge and capabilities through institutionalized corporations. Therefore, the acquisition of the various forms of technological resources refers to the technology complementarities phenomena.
According to Liu and Premus (2000), technological changes have led to economic change and growth. In order to understand the impact of technological changes, there is a need to differentiate between the concepts of technological complementarities, spillovers, externalities, combinatorics, and concatenation. Technological complementarities are a much wider concept that outlines the major technological changes in society. On the other hand, the spillovers identify the various interrelationships that occur between the different interrelationships in the organizations. The spillovers identify the purposes of technologies covered among the different firms and industries. The spillover effects can be measured by sustaining reliable technologies and changes to enhance productivity. Many technologies spillovers occur through co-operating among the different amendments for the inventions of new technologies.
The externalities identify the externalities that occur among a set of actions to fulfill certain optimal conditions. The activities that require the relevant conditions can lead to either positive or negative externalities. However, the externalities identify the frameworks changes in which tastes and technology are set. Combinatorics describes the development in science and technologies that creates a new approach of material for the development of relevant chemical principles. It assists in material change and exploration for the development of new production and innovation across the world. Concatenation concepts identify the integration of data and technologies ineffective mechanisms that interact with the various techniques for improved technological advancement (Liu, & Premus, 2000). In spite of the differences, the concepts of technological complementarity, spillovers, externalities, combinatorics, and concatenation are used interdependently to determine the technological changes and their impact on the economy.
Technological complementarities and uncertainty exist because of the various reasons that surround the long-term economic growth effects. The uncertainties exist due to the inability to detect any future influences on innovations. However, uncertainty is a product of various factors that are involved in the innovation process. Thus, the way in which technological changes affect the economy, it develops relevant aspects of economic importance (Liu, & Premus, 2000). The uncertainties can result from the introduction of a new technology associated with poor quality of information and decision-making. Based on some historical perspectives, uncertainties exist from the nature of the technology advances in society. The technological changes involve relevant measurements, navigation, and chemical research that are uncertain.
The modeling process has strong implications for the economic growth process. The different models offer relevant explanations of the growth experience of the different countries. The models have helped in shaping the economic growth perspectives in different economies. Solow’s growth model observes that there is a need to develop a classical approach on economic growth perspectives (Tidd, & Bessant, 2011). Similarly, the neoclassical growth and exogenous growth models have offered relevant and detailed explanations on the optimization of productivity growth in firms. The implications of the modeling process are strong in identifying the production functions and dynamics of capital accumulation.
Liu, L., & Premus, R. (2000). Global economic growth: Theories, research, studies, and annotated bibliography, 1950-1997. London: Greenwood Publishing Group
Tidd, J., & Bessant, J. (2011). Managing innovation: integrating technological, market and organizational change. New Jersey: John Wiley & Sons.