The Importance of

Technological
Progress

Technological Progress
For a given level of TFP, declining MPK indicates that economy
is approaching steady state
150 years after Industrial Revolution, OECD nations yet to
reach steady state
Explained by continuous shifts in steady state due to
technological progress
Technological progress contributes to:
Growth in output (as capital becomes more productive)
Additional capital accumulation (as steady state capital stock
increases)

Fig. Technological Progress and Growth

Accounting

Research & Development (R&D)

As countries approach steady state, incentives of firms to
engage in R&D increases
Mature economies focus more on R&D than emerging
economies
As others play catch-up, growth slows down in richer countries
due to:
Diminishing MPK
R&D related trials and tribulations

In the long run, growth occurs from technological progress

alone

Fig. R&D as Percentage of GDP of South Korea

Source: OECD, Main Science and Technology Indicators: 2003 edition

Fig. R&D expenditures of different nations as percent

of GDP
Source: UN Human Development Report (2003)

Source:OECD, Main Science and Technology Indicators Database, June 2016

Foreign Direct
Investment &
Technology
Transfer

Foreign Direct Investment (FDI)

Vital for emerging markets to catch up with advanced economies
FDI occurs as:
Overseas companies building production plants in a country
Overseas companies taking significant stake at a domestic firm

FDI provides:
Additional capital
Improved technology
Better TFP

Growing importance of Multinational Enterprises (MNEs)