technology space to economic space

8/7/2019 Technology Space to Economic Space

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FROM TECHNOLOGY SPACE TO

ECONOMIC SPACE:

A PRODUCTION FUNCTION

PERSPECTIVE

- S BISALIAH


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1. Growth Accounting Analysis: Deep Drivers of Growth.

An increase in the capital-labour ratio:

An increase in investment in physical capital through increases in

saving ratep main policy goal implied in Harrod Domar growth Model.

Failure of input growth to account for output growth

Unaccounted output growth: Residual, a measure of ignorance

(Abranovitz)

Call the residual as technical change from capital accumulation to

technical change (Solow)

Allocate technical change to various elements of efficiency or quality

changes in inputs. (Jorgenson, and Denison and others)


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New Growth Tehory (Romer, Lucas and others):

y Growth is endogenous, arising from intentional actions of economic

agents and Government

Growth Not exogenous

Sustained increase in physical and human capitalp Increasing return

scaleppermanent increase in the growth rate.

An important role to human capital to prevent physical capital from

diminishing returns.

Idea gap between the developed and developing countries

Globalization to bridge idea gap through capital and technology flows.

NGT: get into the black box of productivity to understand its origin.


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2. Variants of Technical Change: Models:

2.1. Resource Endowments, Resource prices and induced innovations:

U.S.Model of Technological path:

Labour saving Mechanical Technology (Labour substitutes)

Japanese Model:

Land saving technology (Land substitutes)

Output growth due to dynamic factor substitution.

Now: Both labour saving and land saving technology through labour and land

substitutes. Technological convergence: The case of tomato harvester.

2.2.Other variants:

Embodied and disembodied technical change.

Managerial technology.

Institutional technology.


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yPossible sources of efficiency:

Technical change (Ex: New machines / New crop variety and so on)

Managerial Technology

Institutional Technology

Learning by doing

yAn increase in efficiency ( )Rwitho9

Downward shift in unit cost functions (Duality Theorem)

Upward shift in profit function

Homothetic parallel shift in isoquants towards origin

p Diagrammatic Representationn


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X1 = The unit isoquants of old technology

OG&OH = The resource base

X1 = 1: The unit isoquants of new technology

Use less amount of K and L to produce the same amount of output IfOG of K and OH of L employed:

X = 1 to X1 = 1 + T

Where T = proportional increase in output due to technical change alone.

y

F

X1 = 1+T,X=1X1 = 1

LEH0

CK

G

DA

B

y


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3. Neutral and Non-Neutral Technical change:

Three versions: Hicks, Harrod and Solow

Hicks: Measure the nature of technical change along a constant K/L ratio

Harrod: Along a constant K/Y ratio

Solow: Along a constant L/Y ratio.

3.1. y The Hicksian Neutral T. change:

Definition 1:

OTNTMPK

MPL

MPK

MPL

B = TL - TK = 0TL = proportional change in MPL

TK= proportional change in MPKB = Bias = 0

Proportional change in MPL and MPK


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Definition 2: Constant ratio of output elasticities

OTK

L

NTK

L

e

e

e

e

!

Definition 3: Homothetic (parallel) shift in Isoquants towards origin.

Definition 4: Downward parallel in unit cost functions.

Definition 5: Can you think of the behaviour of wage rate and

rate of interest?


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3.2. The Hicksian Non-Neutral Technical Change:

Recall two major propositions of the Hicksian Neutral Technical Change.

y Technical change increases the MPK and MPL in precisely the same proportion

y B = TL - TK = 0

Marginal productive power of K and L are blown up the same proportion.

The Hicksian Non-Neutral T.C:

y TL > TK B > 0

MPL has risen more than that of MPK.

Labour-using or capital saving technology

y TK > TL B < 0

MPK has risen more than that of MPL

Capital using or labour saving technology

y Remember B: A measure of technology bias

Question: What will be the impact on w and r (rate of interest) when

B = 0, B > 0 & B < 0 ? and the ratio of w to r?.


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Neutral and Non-Neutral technical change:

y Neutral Technical change: Parallel upward shift in P.F with no change

in output elasticities (a & b, called slope parameters), but change in only

in efficiency parameter, A.

Non-Neutral technical change: Upward shift in P.F due to changes in

both efficiency and slope parameters (output elasticities)

Many other versions of Technical change like no-change in A and change

in slope parameters.


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5. Two measurement Devices:

Ratio analysis: Divide an index of output by an index of input.

Production Function:

y Estimate two production functions

y Verify for structural break in production functions: Chow Test

y Use covariance analysis to find out nature of technical change.

y Use dummy variable technique to find out whether the structural break

is due to difference in efficiency parameter or slope parameters or both.

y Use the empirical results to measure the technology effect and inputeffect of technical changepMethodology: Next session.

Note: Try alltheseforchangesintechniquesofproduction, managerial

technology,institutionaltechnology, andlearningbydoing.

technology space to economic space

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