The Impacts of Technological Invention on Economic Growth – a Review of the Literature Andrew Reamer1 February 28, 2014
THE GEORGE WASHINGTON INSTITUTE OF PUBLIC POLICY The Impacts of Technological Invention on Economic Growth – A Review of the Literature Andrew Reamer1 February 28, 2014 I. Introduction In their recently published book, The Second Machine Age, Erik Brynjolfsson and Andrew McAfee rely on economist Paul Krugman to explain the connection between invention and growth: Paul Krugman speaks for many, if not most, economists when he says, “Productivity isn’t everything, but in the long run it’s almost everything.” Why? Because, he explains, “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”—in other words, the number of hours of labor it takes to produce everything, from automobiles to zippers, that we produce. Most countries don’t have extensive mineral wealth or oil reserves, and thus can’t get rich by exporting them. So the only viable way for societies to become wealthier—to improve the standard of living available to its people—is for their companies and workers to keep getting more output from the same number of inputs, in other words more goods and services from the same number of people. Innovation is how this productivity growth happens.2 For decades, economists and economic historians have sought to improve their understanding of the role of technological invention in economic growth. As in many fields of inventive endeavor, their efforts required time to develop and mature. In the last five years, these efforts have reached a point where they are generating robust, substantive, and intellectually interesting findings, to the benefit of those interested in promoting growth-enhancing invention in the U.S.
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