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Technological Change in a Global Economy

Technological Change in a Global Economy. Presented to: Dr. Khurrum S. Mughal December 25, 2013. Group Members. Agenda. Impact of technological changes Relationships between rate of technological change and market structures

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Technological Change in a Global Economy

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  1. Technological Change in a Global Economy Presented to: Dr. Khurrum S. Mughal December 25, 2013

  2. Group Members

  3. Agenda • Impact of technological changes • Relationships between rate of technological change and market structures • Characteristics of innovation and factors that result in successful innovation

  4. Technological Change The overall process of invention, innovation and diffusion in technologies and processes is called Technological Change Example: Electron microscopes • Impact • New products • Improvements • Cost reductions for existing products • Better ways of managing business operations

  5. Technological Change and Production Function Q • Allow use of fewer input for same level of output • Shift in production isoquant Q1 Q Q1

  6. Contd. • Technological change can be: • Input-Neutral • Capital saving • Example: transistors • Labor saving • Example: industrial robots in automobile manufacturing Input-Neutral Capital Saving Labor Saving

  7. Technological Change, Productivity and Economic Growth • Labor productivity • Common productivity measure Labor Productivity = Output Labor • Productivity of inputs real income

  8. Contd. • Change in labor productivity • Technological change • Human capital • Capital stock of economy • Change in relative input prices • Measures of productivity • Labor productivity – easy to compute • Total factor productivity – better indicator • Compares changes in output to that in inputs • Knowledge/Technology – single most important source of economic growth

  9. Effect of Market Structure on Technological Change • Unresolved Issues • Competitive Markets • Small firms – no funds for R&D • Easily imitated new products – unable to capture all economic profits • Study by Jewkes, Sawers and Stillerman • Investigated origins of 70 major inventions since 1880 • Results: • 54% – people working alone • 35% – individual research laboratories • 11% – individuals working with research institutions

  10. Contd. Small firms more progressive than larger firms • Small Firms • Environment for new ideas • Innovate to survive • Large Firms • Bureaucratic rules • Little motivation to change Evaluation • Ability • Incentives

  11. Effect of Technological Change on Market Structure Market Structure Technological Change Example 1: Telecommunication Example 2: Computer Industry

  12. Static vs. Dynamic Inefficiency • Large firms with market power • Facilitate technological change • May cause firm to be inefficient • Static efficiency • Dynamic efficiency Static efficiency is less important than dynamic efficiency

  13. Contd.

  14. R&D and Prisoner’s Dilemma Prisoner’s Dilemma “A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome.” Example • Cigarette advertising

  15. Contd. • Situation where R&D is wasteful • Firms in duopoly • One firm reduces cost – most efficient • Both firms reduce cost – little benefit Firm B R&D No R&D R&D Firm A No R&D

  16. Country-wise Comparison of R&D Efforts

  17. Industrial Innovation • Invention • Creation of new ideas • Innovation • Taking those ideas and transforming them into something useful for the society • Diffusion • New product/process becomes widely available Example: Scurvy (no diffusion)

  18. Product vs. Process Innovation

  19. Requirements for Successful Innovation • Often no reward for first mover • Examples • Bowmar instruments (pocket calculators) • RC cola (cola drinks) • Electrical musical industries (CAT-Scan technology) • Challenge • Solution • Patents and Innovation

  20. Thank You 

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