Long-Run Economic Growth and Technological Progress
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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Park, Joonkyung Research Report Long-run Economic Growth and Technological Progress KDI Research Monograph, No. 2005-01 Provided in Cooperation with: Korea Development Institute (KDI), Sejong Suggested Citation: Park, Joonkyung (2005) : Long-run Economic Growth and Technological Progress, KDI Research Monograph, No. 2005-01, ISBN 89-8063-241-X, Korea Development Institute (KDI), Seoul, http://dx.doi.org/10.22740/kdi.rm.e.2005.01 This Version is available at: http://hdl.handle.net/10419/200942 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Long-Run Economic Growth and Technological Progress Joon-kyung Park Korea Development Institute KDI Research Monograph 2005-01 ⓒ December 2005 Korea Development Institute 207-41, Cheongnyangni-dong, Dongdaemun-gu P.O. Box 113, Cheongnyang Seoul, Korea ISBN 89-8063-241-X 93320 Preface In the 1950s and 1960s, most OECD countries grew rapidly as they recovered from the war and applied US technology and knowledge to upgrade their economies. Growth of GDP per capita in Western Europe reached almost 4% annually over the 1950-73 period, and Japan grew even more rapidly. This catch-up period came to a halt in the 1970s; in fact, average growth rates of GDP per capita since the 1973 for much of the OECD area were only half of the preceding period. In the 1990s, a few OECD countries, including the US, had seen acceleration in growth of GDP per capita. On the other hand, some of the other major economies have lagged. This divergence has caused renewed interest in the main factors driving economic growth and the policies that might influence it. The suspicion that persistent differences in growth across countries may have something to do with technology has been around for a long time. In spite of the massive and systematic exploitation of scientific discoveries and technological innovation, however, economists were unable to understand – or possibly just uninterested in – the sources of innovation. Since the mid-1980s, economists have to some extent addressed this gap. Articles on technical change are published frequently in mainstream journals. New data sources have been created and conferences on this issue are held with increasing frequency. Even politicians, who have for long preferred to rely on the advice of natural scientists and engineers, have allowed the advice of economists to inform their science and technology policies. While it was largely heterodox economists who first analyzed technical change, orthodox economists have also increasingly turned to the study of the determinants of innovation. This research monograph is a brief review of the literatures on various issues that help understand the critical role of technological innovation in long-term economic growth. They include studies on long-term income growth since 1820; historical reviews of the technological progress in the capitalist development; the literature on productivity gap and convergence; management of technology, a discipline emerged in the mid-1980s; and the R&D policy as a critical element of economic growth policy. The author expresses his gratitude to the referees for constructive comments. December, 2005 Jung Taik Hyun President Korea Development Institute Table of Contents …………………………………………………………………. 1 Summary 1. Introduction …………………………………………………………….. 4 2. Income Growth, Productivity Gap and Convergence 2.1 Long-Run Economic Growth Since 1820 ……………………………. 11 2.2 Theoretical Perspectives on Economic Growth …………………….. 17 2.3 Technology Gap and Productivity Convergence …………….……… 21 2.4 Long-Waves of Socioeconomic Development ……………………….. 25 3. Technological Advances and Industrial Progress 3.1 Introduction …………………………………………………………… 34 3.2 Industrialization in Europe Before 1820 ……………………………. 36 3.3 Industrialization in Continental Europe, 1830-1914 ……………….. 44 3.4 Industrialization in the US, 1870-1930 ………………………………. 57 3.5 Industrialization in the West, 1930-1970 ……………………………. 67 3.6 Industrialization since 1970 ………………………………………….. 75 4. Technology, Competition and Industrial Dynamics 4.1 Industrial Dynamics and Innovation Process ………………………. 92 4.2 Management of Technology ………………………………………….. 99 4.3 Integrating Technology and Business Strategy …………………….. 117 5. Market Failures and Policy Responses 5.1 R&D Policy as a Critical Element of Growth Policy ……………….. 123 5.2 Technology-Based Market Failures …………………………………. 127 5.3 Funding Generic Technology Research .…..………………………… 134 5.4 Evaluation as a Source of Strategic Intelligence ……………………. 140 References ………………………………………………………………….. 146 List of Tables Table 2.1 Growth Rates of GDP Per Capita (%) 12 Table 2.2 GDP Per Capita, Benchmark Years (US=100) 12 Table 2.3 Levels of GDP Per Hour worked, Benchmark Years (US=100) 24 Table 5.1 Technology-based market failures and policy responses 133 List of Figures Figure 4.1 Technology Lifecycle 94 Figure 4.2 Technology S-curve 96 Figure 4.3 Science and Technology Research Track 98 Figure 5.1 Technology Lifecycles 128 Figure 5.2 Risk Reduction and Research Funding 137 Figure 5.3 Sequential Model of Development and Funding 139 Summary Income Growth, Productivity Gap and Convergence US per capita GDP grew at an annual average rate of 1.8% between 1870 and 1998. The major acceleration above the long-run trend was in the post-war golden age, 1950-73. Starting from the same level of productivity and per capita income as the US in the mid- 19th century, Western Europe fell behind steadily to a level of barely half in 1950, and then began a rapid catch-up. Western Europe, Japan and the US were approaching equality of income by the later 1980s. Since the early 1970s, growth has been slower: average growth rates of GDP per capita for much of the OECD countries were only half of the preceding period. This triggered widespread concern over the possibility of continued slow growth or even retardation in coming decades. There was a growing sense of insecurity and instability, alongside rising indicators of malaise such as unemployment. Since the 1980s, there has been a new wave of interest in economic growth, catch-up and convergence. In the 1990s, a few OECD countries had seen acceleration in income growth, while other major economies have lagged. This divergence has caused renewed interests in the main factors driving economic growth and policies that might influence it. The suspicion that persistent differences in economic growth across countries may have something to do with technology has been around for a long time. In spite of the massive and systematic exploitation of scientific discoveries and technological innovations, economists were unable to understand – or possibly just uninterested in – the sources of innovation. Since the mid-1980s, economists have, to some extent, addressed this gap. In the 1980s, it became obvious that the neoclassical growth theory had little to offer in terms of policy advice. Even the new growth model has, due to its high level of abstraction, short-comings for managers and policymakers confronting concrete problems: its assumption suppresses the rich complexity of real-world technological innovations. The technology-gap theory recognize technological differences as the prime cause for differences in GDP per capita across countries, and argued that technology is embedded in organizational structures (firms, networks, institutions, etc.), and is difficult and costly to transfer from one setting to another. Technical change is analyzed as the outcome of innovation and learning activities in organizations, and interaction between these and their environment. The path-dependency of this process is often emphasized: country-specific factors influence the process of technological change, and thus give the technologies of different countries a distinct national flavor. Thus, the concept of national innovation systems – each with its own specific dynamics – is used as an analytical device. Empirical studies on technology-gap suggest that catch-up is very difficult and only countries with appropriate economic and institutional characteristics will succeed. Countries characterized by a large technological gap and a low social capability run the risk of being caught in a low-growth trap. As a country moves closer towards the technological frontier, indigenous technological capabilities become more and more important. The catch-up literature is mostly descriptive, with