Investment-specific technological progress: Difference between revisions
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Technological progress has direct positive impacts upon human [[welfare economics|welfare]]. As a result of new technologies producers can produce a greater volume of product at a lower cost. The resulting reduction in prices benefits the consumer, who now can purchase more. <ref>{{Citation | last=Greenwood | first=Jeremy | last2=Vandenbroucke | first2=Guillaume | year=2006 | chapter= Hours Worked: Long-Run Trends |
Technological progress has direct positive impacts upon human [[welfare economics|welfare]]. As a result of new technologies producers can produce a greater volume of product at a lower cost. The resulting reduction in prices benefits the consumer, who now can purchase more. <ref>{{Citation | last=Greenwood | first=Jeremy | last2=Vandenbroucke | first2=Guillaume | year=2006 | chapter= Hours Worked: Long-Run Trends |
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| editor=Lawrence E. Blume, Steven N. Durlauf | title=The New Palgrave Dictionary of Economics | edition=2nd | publisher=Palgrave Macmillan | place=London }}</ref>. Women have been able to break away from the traditional "[[housewife]]" role, join the labor-force in greater numbers |
| editor=Lawrence E. Blume, Steven N. Durlauf | title=The New Palgrave Dictionary of Economics | edition=2nd | publisher=Palgrave Macmillan | place=London }}</ref>. Women have been able to break away from the traditional "[[housewife]]" role, join the labor-force in greater numbers and become less economically dependent on men <ref>{{Citation | last=Greenwood | first=Jeremy | last2=Guner | first2=Nezih | title=Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households | journal=NBER Macroeconomics Annual 2008| volume=23 |year=2009| pages=231–276 | doi=10.1086/593087| url=https://www.econstor.eu/bitstream/10419/35115/1/559459432.pdf}}</ref>. Further impacts include a reduction in [[child labor]] starting around 1900 <ref>{{Citation| last=Greenwood | first=Jeremy | last2=Seshadri | first2=Ananth| year=2005 | chapter=Technological Progress and Economic Transformation | editor= Philippe Aghion and Steven N. Durlauf | title=Handbook of Economic Growth | publisher=Elsevier North-Holland | place=Amsterdam}}.</ref>. |
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[[Image:kid1.jpg|thumb|400px|center|Figure 1]] |
[[Image:kid1.jpg|thumb|400px|center|Figure 1]] |
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==A simple example: the microwave oven== |
==A simple example: the microwave oven== |
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An example of investment-specific technological progress is the [[microwave oven]]. The first microwave oven cost between $2000 and $3000 US and was housed in refrigerator-sized cabinets. Through regular technological investment the microwave industry has developed into a competitive market, with small compact units in many households <ref> {{Citation |
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An example of investment-specific technological progress is the [[microwave oven]]. The idea of the microwave came to be by accident: in 1946 an engineer noticed that a [[candy bar]] in his pocket had melted while working on something completely unrelated to cooking (Gallawa 2005). The development of this good, from melting the candy bar to the home appliance known today, took time and the investment of resources to make a microwave small and cheap. The first microwave oven cost between 2000 and 3000 dollars and was housed in refrigerator-sized cabinets (Gallawa 2005)! Today, almost any college student can enjoy a 3-minute microwaveable meal in the smallest dorm room. But a microwave's uses do not stop at the dorm room. Many industries have found microwave heating advantageous: it has been used to dry cork, ceramics, paper, leather, and so on (Gallawa 2005). However, for either college students or firms to reap the benefits of quick warming, they must first "invest" in a microwave oven (that "embodies" the technological advance). To realize the benefits of investment-specific technological progress you must first invest in a technology that embodies it. |
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| last=Gallawa | first=J. Carlton | title=Who Invented Microwaves | url= http://www.gallawa.com/microtech/history.html| year=2005}}</ref>. Many industries have adopted the microwave through capital or research investment, applications outside the food industry include the [[iron]] and [[steel]] industry as a heating tool<ref>{{Cite journal|last=Yoshikawa|first=Noboru|last2=Ishizuka|first2=Etsuko|last3=Mashiko|first3=Kenichi|last4=Chen|first4=Yan|last5=Taniguchi|first5=Shoji|date=2007|title=Brief Review on Microwave (MW) Heating, Its Application to Iron & Steel Industry and to the Relevant Environmental Techniques|url=http://joi.jlc.jst.go.jp/JST.JSTAGE/isijinternational/47.523?from=CrossRef|journal=ISIJ International|language=en|volume=47|issue=4|pages=523–527|doi=10.2355/isijinternational.47.523|issn=0915-1559}}</ref> and the [[chemical industry]] as a tool for [[organic synthesis]]<ref>{{Cite book|url=https://www.worldcat.org/oclc/945552571|title=Milestones in microwave chemistry|others=Keglevich, György,|isbn=978-3-319-30632-2|location=Switzerland|oclc=945552571}}</ref>. |
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==Measurement== |
==Measurement== |
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There is no direct metric for measuring technological progress, as such workarounds based upon direct relationships between technological progress and recordable values are used. "'Investment-specific'" technological progress makes producing goods easier, as a result the price of the goods will decrease. In particular, "investment-specific" technological advance has affected the prices of two inputs into the production process: equipment and structures. If there is technological progress in the production of these goods, then it is expected the price will fall or the value of the good will rise relative to older versions of the same good. |
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Figure 2 (the pink line) shows how the price of new [[producer durables]] (such as equipment) in the United States relative to the price of new consumer nondurables |
Figure 2 (the pink line) shows how the price of new [[Durable good|producer durables]] (such as equipment) in the United States relative to the price of new consumer nondurables has consistently declined over the past fifty years <ref>{{Citation | last=Gort | first=Michael | last2=Greenwood | first2=Jeremy | last3=Rupert | first3=Peter | title=How Much of Economic Growth is Fueled by Investment-Specific Technological Change? | journal=Economic Commentary, Federal Reserve Bank of Cleveland | date=March 1, 1999 }} </ref>. To calculate the relative price of producer durables divide the price that firms pay (for the durable inputs of production) by the price that a consumer of the firms product pays. Relative prices are used to represent how many units of equipment can be bought in terms of the a single unit of consumer goods.As a result of technological development, firms have been able to buy comparitevly more units of equipment for each unit of consumption, |
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with the quality of the goods increasing while the cost of production decreases. When changes in quality are not taken into account the apparent price of equipment undergoes a smaller reduction (see the black line in Figure 2). |
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[[File:Investment-specific technological progress - Figure 2.jpg|thumb|400px|center|Figure 2]] |
[[File:Investment-specific technological progress - Figure 2.jpg|thumb|400px|center|Figure 2]] |
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One approach to measuring the price of technologicaly improved structures is to assign newer building a higher value due to the embodyment of the new technology with the design <ref>{{Citation | last=Gort | first=Michael | last2=Greenwood | first2=Jeremy | last3=Rupert | first3=Peter | title=How Much of Economic Growth is Fueled by Investment-Specific Technological Change? | journal=Economic Commentary, Federal Reserve Bank of Cleveland | date=March 1, 1999 }} </ref>. In particular, they should rent for more, i.e. renting a square foot in a new building is much more expensive than renting a square foot in a building forty years old. |
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[[Image:figure4.jpg|thumb|400px|center|Figure 3]] |
[[Image:figure4.jpg|thumb|400px|center|Figure 3]] |
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Figures 2 and 3 suggest that '''investment-specific''' technological change is operating in the US. The annual rate of technological progress in equipment and structures has been estimated to be about 3.2% and 1%, respectively |
Figures 2 and 3 suggest that '''investment-specific''' technological change is operating in the US. The annual rate of technological progress in equipment and structures has been estimated to be about 3.2% and 1%, respectively <ref>{{Citation | last=Greenwood | first=Jeremy | last2=Hercowitz | first2=Zvi | last3=Krusell | first3=Per |authorlink3=Per Krusell | title=Long-Run Implications of Investment-Specific Technological Change | journal= American Economic Review | volume=87 | issue=3 | year=1997 | pages=342–362}} </ref>. |
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==Conclusion== |
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In the second section it was mentioned that "investment-specific" technological change is important since it will affect production (both in quality and size). An important question then is, just how much "bang for your buck" do you get with "investment-specific" technological change? The answer is quite astounding; economists have found that 37% of growth in United States output (production) is due to technological progress in equipment and 15% is due to technological progress in structures (Gort et al. 1999) (Greenwood et al. 1997). All in all, more than half (37% + 15% = 52%) of the growth of the United States economy is due to "investment-specific" technological change (Gort et al. 1999) (Greenwood et al. 1997). |
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==References== |
==References== |
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* {{Citation |
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| last=Gallawa | first=J. Carlton |
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| title=Who Invented Microwaves |
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| url= http://www.gallawa.com/microtech/history.html| year=2005}}. |
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* {{Citation |
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| last=Gort | first=Michael | last2=Greenwood | first2=Jeremy |
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| last3=Rupert | first3=Peter |
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| title=How Much of Economic Growth is Fueled by Investment-Specific Technological Change? |
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| journal=Economic Commentary, Federal Reserve Bank of Cleveland | date=March 1, 1999 }}. |
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* {{Citation |
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| last=Greenwood | first=Jeremy | last2=Guner | first2=Nezih |
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| title=Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households |
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| journal=NBER Macroeconomics Annual 2008| volume=23 |year=2009| pages=231–276 | doi=10.1086/593087| url=https://www.econstor.eu/bitstream/10419/35115/1/559459432.pdf}}. |
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* {{Citation |
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| last=Greenwood | first=Jeremy | last2=Hercowitz | first2=Zvi |
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| last3=Krusell | first3=Per |authorlink3=Per Krusell |
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| title=Long-Run Implications of Investment-Specific Technological Change |
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| journal= American Economic Review | volume=87 | issue=3 |
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| year=1997 | pages=342–362}}. |
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* {{Citation |
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| last=Greenwood | first=Jeremy |
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| last2=Jovanovic | first2=Boyan | authorlink2=Boyan Jovanovic |
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| year=2001 | chapter=Accounting for Growth |
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| editor=Charles R. Hulten, Edwin R. Dean & Michael J. Harper |
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| title=New Developments in Productivity Analysis | publisher=University of Chicago Press | place=Chicago }}. |
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* {{Citation |
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| last=Greenwood | first=Jeremy | last2=Seshadri | first2=Ananth |
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| last3=Yorukoglu | first3=Mehmet |
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| title=Engines of Liberation |
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| journal= Review of Economic Studies | volume=72 |
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| issue=1 | year=2005 | pages=109–133 |
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| doi=10.1111/0034-6527.00326 }}. |
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* {{Citation |
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| last=Lebergott | first=Stanley |
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| title=Manpower in Economic growth: The American Record since 1800 |
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| year=1964 | publisher=McGraw-Hill Company | place=New York}}. |
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[[Category:Economic growth]] |
[[Category:Economic growth]] |
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Revision as of 04:17, 24 October 2020
 | This article is written like a personal reflection, personal essay, or argumentative essay that states a Wikipedia editor's personal feelings or presents an original argument about a topic. (December 2007) |
Investment-specific technological progress refers to progress that requires investment in new equipment and structures embodying the latest technology in order to realize its benefits. To model the influence of technological change upon production the influence of a technological change upon the specific inputs (i.e. labor and capital) of a production model is assessed in terms of the resulting effect upon the final good of the model (i.e. goods and services).
To realize the benefits of such technological change for production a firm must invest to attain the new technology as a component of production. For example, the advent of the microchip (an important technological improvement in computers) will affect the production of Ford cars only if Ford Motor Co.'s assembly plants invest in computers with microchips (instead of computers with punched cards) and use them in the production of a product, i.e. Mustangs. Investment-specific technological progress requires investing in new production inputs which contain or embody the latest technology. Notice that the term investment can be general: not only must a firm buy the new technology to reap its benefits, but it also must invest in training its workers and managers to be able to use this new technology[1].
Significance
Identifying investment-specific technological progress within an economy will determine how an individual behaves in reaction to new technology, i.e. whether the individual will invest their savings[2]. If "investment-specific" technological change is the main source of progress in an industry, then the individual would invest in firms to purchase and develop new capital, as technological improvements result in improvements to the goods available to consume. Firms may also choose to train current employees in the new technology or subsidize the education of new employees in the operation of the new technology. As such technological progress has an impact upon the labour market [3].
Technological progress has direct positive impacts upon human welfare. As a result of new technologies producers can produce a greater volume of product at a lower cost. The resulting reduction in prices benefits the consumer, who now can purchase more. [4]. Women have been able to break away from the traditional "housewife" role, join the labor-force in greater numbers and become less economically dependent on men [5]. Further impacts include a reduction in child labor starting around 1900 [6].
A simple example: the microwave oven
An example of investment-specific technological progress is the microwave oven. The first microwave oven cost between $2000 and $3000 US and was housed in refrigerator-sized cabinets. Through regular technological investment the microwave industry has developed into a competitive market, with small compact units in many households [7]. Many industries have adopted the microwave through capital or research investment, applications outside the food industry include the iron and steel industry as a heating tool[8] and the chemical industry as a tool for organic synthesis[9].
Measurement
There is no direct metric for measuring technological progress, as such workarounds based upon direct relationships between technological progress and recordable values are used. "'Investment-specific'" technological progress makes producing goods easier, as a result the price of the goods will decrease. In particular, "investment-specific" technological advance has affected the prices of two inputs into the production process: equipment and structures. If there is technological progress in the production of these goods, then it is expected the price will fall or the value of the good will rise relative to older versions of the same good.
Figure 2 (the pink line) shows how the price of new producer durables (such as equipment) in the United States relative to the price of new consumer nondurables has consistently declined over the past fifty years [10]. To calculate the relative price of producer durables divide the price that firms pay (for the durable inputs of production) by the price that a consumer of the firms product pays. Relative prices are used to represent how many units of equipment can be bought in terms of the a single unit of consumer goods.As a result of technological development, firms have been able to buy comparitevly more units of equipment for each unit of consumption, with the quality of the goods increasing while the cost of production decreases. When changes in quality are not taken into account the apparent price of equipment undergoes a smaller reduction (see the black line in Figure 2).
One approach to measuring the price of technologicaly improved structures is to assign newer building a higher value due to the embodyment of the new technology with the design [11]. In particular, they should rent for more, i.e. renting a square foot in a new building is much more expensive than renting a square foot in a building forty years old.
Figures 2 and 3 suggest that investment-specific technological change is operating in the US. The annual rate of technological progress in equipment and structures has been estimated to be about 3.2% and 1%, respectively [12].
References
- ^ Greenwood, Jeremy; Jovanovic, Boyan (2001). New developments in productivity analysis - Accounting for Growth. Hulten, Charles R., Dean, Edwin., Harper, Michael J., Conference on Research in Income and Wealth. Chicago: University of Chicago Press. ISBN 0-226-36064-4. OCLC 290503961.
- ^ Gort, Michael; Greenwood, Jeremy; Rupert, Peter (March 1, 1999). "How Much of Economic Growth is Fueled by Investment-Specific Technological Change?". Economic Commentary. Federal Reserve Bank of Cleveland: 1.
- ^ Krusell, Per (1998), "Investment-Specific R and D and the Decline in the Relative Price of Capital", Journal of Economic Growth, 3 (2): 131–141, doi:10.1023/a:1009701518509
- ^ Greenwood, Jeremy; Vandenbroucke, Guillaume (2006), "Hours Worked: Long-Run Trends", in Lawrence E. Blume, Steven N. Durlauf (ed.), The New Palgrave Dictionary of Economics (2nd ed.), London: Palgrave Macmillan
- ^ Greenwood, Jeremy; Guner, Nezih (2009), "Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households" (PDF), NBER Macroeconomics Annual 2008, 23: 231–276, doi:10.1086/593087
- ^ Greenwood, Jeremy; Seshadri, Ananth (2005), "Technological Progress and Economic Transformation", in Philippe Aghion and Steven N. Durlauf (ed.), Handbook of Economic Growth, Amsterdam: Elsevier North-Holland.
- ^ Gallawa, J. Carlton (2005), Who Invented Microwaves
- ^ Yoshikawa, Noboru; Ishizuka, Etsuko; Mashiko, Kenichi; Chen, Yan; Taniguchi, Shoji (2007). "Brief Review on Microwave (MW) Heating, Its Application to Iron & Steel Industry and to the Relevant Environmental Techniques". ISIJ International. 47 (4): 523–527. doi:10.2355/isijinternational.47.523. ISSN 0915-1559.
- ^ Milestones in microwave chemistry. Keglevich, György,. Switzerland. ISBN 978-3-319-30632-2. OCLC 945552571.
{{cite book}}: CS1 maint: extra punctuation (link) CS1 maint: others (link) - ^ Gort, Michael; Greenwood, Jeremy; Rupert, Peter (March 1, 1999), "How Much of Economic Growth is Fueled by Investment-Specific Technological Change?", Economic Commentary, Federal Reserve Bank of Cleveland
- ^ Gort, Michael; Greenwood, Jeremy; Rupert, Peter (March 1, 1999), "How Much of Economic Growth is Fueled by Investment-Specific Technological Change?", Economic Commentary, Federal Reserve Bank of Cleveland
- ^ Greenwood, Jeremy; Hercowitz, Zvi; Krusell, Per (1997), "Long-Run Implications of Investment-Specific Technological Change", American Economic Review, 87 (3): 342–362