Technology change and economic growth (Term Paper Sample)

Name: Instructor: Course: Date: Technology change and economic growth. Introduction. Many countries have or are in the process of adopting technology in various sectors of their economy. For instance, the western countries have had a drastic economic change due to technological adoption as evident through the new technological innovations that have been created in these countries. In 1950s, it was difficult for economist to quantify the importance of technology in growth and this led to questions such as how much technology is needed to fuel the economy of a country, which economic sectors should technology be applied, what are the growth effects of technological change and how is technology related to other social and economic policies? The last few decades has seen new progress in empirical work and theoretical research on technological change and growth in an attempt to provide answers to such question In the 21st century, the importance of technology to economic growth is obvious and this has been facilitated by integration of technology as an economic pillar with macro economic policies such as production, human capital management and education in order to fuel growth (Nordhaus). Macro economic Theory/Event, Technological Change and Growth. Technological innovation and technological change has been a necessity for economic growth and development (Steger). Technological innovations by countries have been advocated for decades with the importance on the same in the developed countries having been long recognized. Some economists argue that advancement in technology in U.S, China, Germany and other western countries has helped launch a period of economic hegemony among those countries. Evidence from empirical research has confirmed the importance of technology in economic growth with education also been associated to the two (Steger). However, how and why does technological change promote economic growth? Most economic analysts contend that technological advancement facilitates efficient production, which is an important aspect of economic growth. Technology is the basis for industrial wealth and for many years, developed nations have emphasized on the need training scientific and technological elites. Technological change allows the labor force to be trained and to acquire more skills. These skills are very fundamental to production and hence growth. When the labor force’s skills are combined with new technology, what results is increased productivity. Increased production put an economy in production surplus where it can produce for the local market and for exports (Nordhaus). After World War II, economic growth was based on Neoclassical Benchmark Model developed by Solow in 1956. The model assumed that all labor and capital were homogeneous and therefore eliminated any differences in labor or capital quality that might have arisen from technology or education. However, as years went by, more theoretical research emerged with approaches that linked technological change to have a positive effect on growth and this is supported by Endogenous growth theory, which contends that arrival of new ideas is an outcome of profit-oriented research and development. The new ideas on the other hand lead to accumulation of knowledge, which is an important aspect of technological change and growth. Effects of technological change on economic growth can be grouped into the following categories described under causes and policies (Crafts). Causes and Policies. Technology as a separate factor of production. The first class of model views technology as a separate factor of production. Technology has been identified by many contemporary economists as the fourth factor of production besides land, labor, and capital. In this approach, technology is viewed as a production factor that can be accumulated. These scientists have therefore defined technology as a science that improves or informs production processes. In contemporary times, technological change have also been linked to entrepreneurship as millions of new ideas have enabled young entrepreneurs start new businesses that have contributed growth to their countries economies in terms of employment and job creation. It is important to note that technological change is associated to human capital, which results due to education. The policy implications for integration of technology in countries economy is that, technological change enhances the growth and competitiveness nature of an economy by boosting sectors such as industrialization and production, which in turn create other opportunities for the society (Nordhaus). Mutual interaction of technological change, human capital, and economic conditions. This model does not view technology as an input production factor but acknowledges that technological change is based on the idea that adoption of new technology and invention, economic conditions and human capital/education are interdependent hence endogenous to the model. The link between technology and human capital in this approach is that, education enables the labor force to acquire skills and knowledge, which in turn leads to technological inventions. New technology on the other hand transforms the production environment. New technology has led to many production demands and therefore human capital has been categorized as skilled, semi skilled and unskilled labor force. The implication behind this reasoning is that if technology in a certain job changes, skills quality required must also change. Technological change must therefore be integrated with education/human capital and other economic conditions in order for the economy to experience growth (Korres 98). Implications and Effects of the policies. There are various implications and effects that can emerge if the two classes of recent models showing the relationship between technological change and economic growth reviewed above are evaluated critically. The first model treats technological change (technology) as a production factor while the second focuses on interaction between technological change, human capital development, and economic conditions. It is therefore apparent to contend that, both models offer paramount insights for technological change in industrialization and productivity, which are important aspects in contributing towards economic development and growth. Should countries therefore invest in technological innovation to spur economic growth? Yes they should. This explains why the western countries do spend billions of dollars in research and development in order to create new form of technology. The implications of such a policy are felt in terms of positive economic growth experienced in countries with high technology as job creation and high productivity is gained (Crafts). Critical Evaluation of the Policy. On a critical note, the policy to adopt and encouraging technological change in order to spur growth...