Table of Contents
Introduction
‘’Prof. Schumpeter, (1951) defines Economic thought as the sum of all the opinions and desires concerning economic subjects especially with public policies of different times and places.’’ He also mentioned that the history of economic thought traces the historical change of attitudes and it identifies different economic problems and at the same time offer economic solutions to those problems.‘’Burgelman et al. (1996) defined technology as the theoretical and practical knowledge, skills, and artefacts that can be used to develop products and services as well as their production and delivery systems’’. It plays a pivotal role in positively affecting the economic growth both in the short run and in the long run. According to Maskus 2003, for a country to yield a positive economic growth, the concept of technology transfer should focus on the recipient’s ability to comprehend and apply it in the production function. This research is based on the impact of technological progress as an intangible asset towards the development of economic thought for different countries. In this case, an evaluation on the industrial revolution and historical perspectives on economic growth in terms of Gross Domestic Product as a result of technological changes, innovations and invention processes are considered. In addition, different models will also be used to elaborate on the impact of technology on the development of economic thought.
Solow Model
Solow (1956), argued that economic growth is a result of two productive factors, thus, capital and labour and referred technology to a factor which shape the function of production. In his model, he considered an increase in total output as a result of increase in the inputs that is capital and labour in relation to technological progress and called this process total productivity. In this case he explained that an increase in the economy’s productivity growth is experienced by a country as technology will be playing a very important role. He mentioned that economic growth is a result of capital accumulation or advancement in total factor productivity, thus economic growth is facilitated by investing more on improving the production efficiency. Solow argued that a policy that promotes economic growth through technological progress can lead to a sustained higher growth rate of output per worker. More to that, a difference can be identified between an economy which encourages technological progress and that which does not pay attention to technological changes. This denotes that a country or economy which pays more attention on technology, will have a high GDP.
Adam Smith
Smith (1776) indicated that there is a relationship between innovation and economic growth. The purpose of his study was to show that positive results in productivity gains results from specialization on the division of labour, technological and innovation changes in capital equipment’s and processes. He also identified the uniqueness of technological transfer from the suppliers to consumers and the importance of research and development function in the growth and operation of the economy. “All the improvements in machinery, however, have by no means been the inventions of those who had occasion to use the machines. Many improvements have been made by the ingenuity of the makers of the machines, when to make them became the business of a peculiar trade; and some by that of those who are called philosophers or men of speculation, whose trade it is not to do anything, but to observe everything; and who, upon that account, are often capable of combining together the powers of the most distant and dissimilar objects. In the progress of society, philosophy or speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens and the quantity of science is considerably increased by it.” (Smith, 1776).
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British Firs Industrial Revolution
The first impact of technology is related to the first industrial revolution of the 18th century which involves different innovations, mostly in the cotton industry in England. In this era, a transition from from handicrafts (characterised by the power for human and animal force) to use of an industry characterised by the use of machinery was made possible by technology (Landes, 2003). Due to this, Britain’s gross domestic product (GDP) increased steadily and its peak was in the 19th century at about 2.5%, thus a spectacular output growth in industries such as cotton textiles where technological advancement plays a pivotal role accumulated to this increase (Crafts, 1998). ‘’Even though industrial transformation was not as intense in other industries as in cotton, it can be said that it did give rise to differing experiences and social relations (Crafts, 1998)’’.
Finland
Finland is also another perfect country which has experienced economic growth due to technological advancement. According to the information from the Finland statistical office, the country has become one of the most innovative nations in the world due to technological transfer and paying more attention on strategies which encourage research and development in industrial activities. The table and graph below show the link between the R&D expenditure and GDP growth.
‘’Finland’s R&D is facilitated by personnel employed both in public funded research institutions and private companies. At the end of the 90s there were engaged more than 60 thousand of research personnel (53% business sector, 30% universities, 17% other public funded institutions)’’. On the diagram it is seen that in the years were a high percentage of expenditure is used, the result would be an increase in the GDP of the economy. For instance, from the year 1997, 1998 and 1999 were high shares of 2.7%, 2.9%, 3.1% were spend, relatively high GDP growth percentages of 6.3% ,5.3% and 4.2% were experienced respectively. This was possible due to technological changes that are brought about innovations due to R&D.
Developing Countries
Technology is a very important factor in increasing the Gross domestic product of developing countries as confirmed by a number of empirical studies that were focusing on certain types of innovation. “Abanda et al. (2012), investigated the relationship between renewable energy production and economic growth looking at the African continent due to technological advancement.’’ Their research reviewed that an increase in the use of renewable energy due to technology has a positive effect on the overall economy’s efficiency, while depending on the input of traditional sources of energy negative affect the technical efficiency. This results in the increase of the Gross Domestic Product of developing countries.
James (2013) also indicated that biotechnology has a positive effect on productivity and GDP. ‘’He mentioned that from 1996 to 2012, biotech crops contributed to increased crop production valued at US$116.9 billion.’’ In addition, a study carried out by the European Parliament (2003) in relation to the impact of biotechnology improved crop production in most developing countries. ‘’For instance, India experienced an increase 54.8% yield since the introduction of biotechnology in 2002 especially in the production of cotton. Argentina also experienced a rise of 28.6% since introduction of biotechnology in the production of cotton in 1998. Philippines and South Africa registered a positive rise of 24.1% and 24.3% respectively since its introduction in 1998 and 2000 respectively. South Africa also managed to introduce biotechnology in the production corn in 2000 and this resulted in an increase of a 15.3% in yields.
Moving from the biotechnology to the production of computer and electronic products, technology made a positive impact the rapid growth of different Asian countries. Mitra (2013), indicated that, in the Philippines, arise in the exportation of the electronic products contributed in the growth of GDP by an average of 4.9% over the period 2000 to 2010. In the same way Thailand also experienced a rise in their GDP due to the exportation of the electronic products. Waverman et al. (2005) indicated that innovations in computers and electronic products results in the creation of more advanced machinery which have a positive effect in the production of textile and clothing industry, computer designed systems among others.
Agrawal, (2002) stated that many studies indicates that there is a positive relationship between the amount of research and development (R&D) and productivity growth. In this case research and development (R&D) has a positive effect on total factor productivity which include human capital and inflows of foreign direct investment (FDI). ‘’Innovation is for the most part vitally important for nations that have reached what is termed the, high-tech frontier, as this is the only self-sustaining driver of growth (Romer, 1987).’’ Technology and innovation has brought about the creation of global business Pioneers such as Microsoft, Apple, Virgin and Nike among others. These companies have managed to create employment for a huge number of people in their respective countries reducing the unemployment rate. For example, according to company facts (2020), Walmart Inc employees 2.2 million people around the word and 1.5 million are in the United States of America. This poses a positive effect on reducing the unemployment rate of the USA as more jobs are being created due to technological innovation. Low unemployment rate means high output in the production of goods and services as more people are working resulting in an increase in the Gross Domestic Product of the United States of America during his period.
Rosenberg (2004), stated that the effectiveness of technological changes does not depend on inventors only, but on the creativity of consumers who use the new technology. He also indicated that a lot of economic historians have paid more attention on the electrification of American factories. Most of the studies by these historians’ states that it took about 40 years, that is, 1880s to 1920s to electrify most American manufacturing factories. In this case the introduction of electricity and invention of machines which were powered by electric motors, resulted in an organized and efficient way of production as compared to steam engines. The introduction of electric powered engines resulted in an increase in the American factory production.
Ethiopia is another African country which shows the impact of technology on the development of economic thought. Shiferaw, (2005) stated that in 1950, Ethiopia experienced its first economic development program which had a positive effect on their industrialization. Regarding this initiation, the government launched the scheme to encourage transfer of technology, skills and foreign investment in order to improve the manufacturing sector. This resulted in an increase in the country’s gross domestic product (GDP) and a decrease in unemployment rate as a result of foreign direct ownership of Ethiopian manufacturing enterprises.
Sheila et al (2000), stated that ‘’In health care research, the impact of medical technology on health care cost increases has always been a great unknown. However, 81 percent of the leading health economists agreed with the statement, “The primary reason for the increase in the health sector’s share of United states of America’s GDP over the past 30 years is technological change in medicine”. He also stated that an increase in the budget for health outweigh the annual growth in Gross Domestic Product by an average of 2.2% from 1940 to 1998 resulting in more resources directed towards the health sector. Although technological innovations is regarded as a positive drive for economic growth, their study has shown that imperfections in the healthy sector as a result of technological changes has resulted in patient’s lack of full information on the services they are provided with to be negative as marginal benefits will be lower than marginal costs. This means patient will be paying more for less and appreciation of technological changes will be compromised.
Conclusion
In conclusion, technology is an important drive in the development of economic thought as a lot of positive result have been experienced by different countries in terms of their Gross Domestic Product (GDP). Solow (1956), argued that economic growth is a result of two productive factors, thus, capital and labour and referred technology to a factor which shape the function of production. In his model, he considered an increase in total output as a result of increase in the inputs that is capital and labour due to technological progress and called this process total productivity. In this case he explained that an increase in the economy’s productivity growth is experienced by a country as technology will be playing a very important role.
In this case, a difference can be identified between an economy which encourages technological progress and that which does not pay attention to technological changes. However, regardless of technology being an important factor behind the economic growth of a country, there are costs which are associated with technological innovations. For instance, Sheila et al (2000), stated that an increase in the budget for health in America outweigh the annual growth in Gross Domestic Product by an average of 2.2% from 1940 to 1998 resulting in more resources directed towards the health sector. Although technological innovations is regarded as a positive drive for economic growth, their study has shown that imperfections in the healthy sector as a result of technological changes has resulted in patient’s lack of full information on the services they are provided with to be negative as marginal benefits will be lower than marginal costs.
References
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