THEORIES OF

TECHNOLOGICAL
CHANGE
Definitions and Concepts
Definitions and Concepts
 Technological change: improvements in the
products, production processes, material and
intermediate inputs and management methods in
the economic system
 The study of technological change analyzes:
 The sources and the direction of potential improvements
 The selection of actual changes from the long menu of
potential changes
 The process of the introduction of such changes
 The impact of such introductions

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Definitions and Concepts
 The three stages in the technological change process:
The Schumpeterian trilogy
 The first stage → invention process: the generation of
new ideas
 The second stage → innovation process: the
development of new ideas into marketable products and
processes
 The third stage → diffusion: the new products and
processes spread across the potential market (that is
where the impact of new technology occurs and is
measured)

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Definitions and Concepts
 The trilogy is not a linear process in which invention
automatically leads to innovation which
automatically leads to diffusion
 At each stage there is a selection process
 There are extensive feedbacks that a linear process
does not represent
 As diffusion proceeds, expectation of profit may feedback
to the invention and innovation process
 The expectations of the returns to technologies represent
the incentive to generate and introduce new technologies

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Definitions and Concepts

 Product innovation: the generation,

introduction and diffusion of a new product
 Process innovation: the generation,
introduction and diffusion of a new production
process
 Organizational innovation: changes in
management methods

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Definitions and Concepts
 Science is associated with the early stages in the
trilogy, say invention, whereas technology is often
associated with later stages in the trilogy
 Technology: as activities generating advances close
to market, which will yield private gain
 Research and development (R&D) process: basic
and applied
 Basic research: relate closely to the invention process
 Applied research: relate closely to the innovation stage

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Definitions and Concepts
 Sources of technological improvement:
 R&D
 Learning of various kinds, design, reverse engineering and
imitation
 Licensing agreements and collaboration agreements
 Acquirements from the suppliers of capital goods
 Technological change: dynamic, involving risk and
uncertainty
 Technological and commercial risk: market failure-
government intervention- policy making

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Technology and Innovation:
The Neoclassical Viewpoint
 Technology as a set of fully known blueprints, codified knowledge
available from the “universal blueprint library”
 Producing the particular level of output at a minimum cost given the
knowledge of the relative prices of the factor services (technology)
 The flow of new knowledge, of inventions and innovations treated as
outside the framework of economic models, as exogenous variables
 Link between technical opportunities and economic choices
(productivity, the elasticity of substitution, factor intensity)
 What determines the production set if not contained in a universal
library?
 Specified by the knowledge contained within the firm

 How about any changes of technique that needs learning and the

growth of new knowledge?

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Technology and Innovation:
The Neoclassical Viewpoint
 The state of technical arts ‘manna from heaven’ →
knowledge as a non-rival good
 Knowledge could be used any number of times by any
number of firms to produce any quantum of output or
indeed to develop new knowledge
 Knowledge is costless to transmit but not costless to
absorb
 Present state of accumulated knowledge matters
 Fact: knowledge costly to produce, costly to absorb and
absorptive capacity depends on prior acquisition of
knowledge

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Technology and Innovation:
The Neoclassical Viewpoint
 Differences in innovation possibility sets are
the rationale of different production possibility
sets
 Learning depending on experience by itself
diversifies between firms generating different
innovation locus (locally bounded pattern of
technological development)
 Creativity; local and radical
 Why different capabilities to innovate and to
produce between firms?
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Evolutionary Approach
 How and why do firms differ in their productive
capabilities?
 The focus is on adaptive response that is also creative
 Local rationality but variation (not uniformity)
 Firm is a creative, imaginative entity and the outcome of
ongoing and unfinished process of organizational design
 Penrose “the capability theory of the firm” → the
competence of the firm
 The central feature of the capabilities perspective lies in
its link with the creation and exploitation of knowledge →
continual development of capabilities and creating new
ones, “routines”

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Technical Change and Development
from an Evolutionary Perspective
 Why the technological change and development is
an evolutionary problem?
 It requires:
 Variation in performance relative to international
competitors
 Structural change in domestic and international economies
(selection)
 Generation of innovation to keep pace with world
developments
 Three concepts of building blocks of economic
evolution: variation, selection and generation

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Technical Change and Development
from an Evolutionary Perspective
 Variation
 Differences between firms in their economic performance
traceable to the differences in their technological and
organizational capabilities
 Idiosyncratic dimension of firms

 Development by imitation and dynamic competition

 Selection
 The competitive process by which the different technological
capabilities acquire different levels of economic significance over
time
 Variation and selection → generation
 Creative capacity “innovative variation”

 The nature of the firm as an experimental agency embedded in

market process as well as its nature as a productive agency is at
the forefront of the evolutionary analyses of technological change

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The Policy Dimension
 Science and technology policy versus innovation policy
 Innovation policy ‘much broader’

 It is concerned with the economic exploitation of practical

knowledge with the flow of resources to support
knowledge accumulation within and between firms
 Classical viewpoint → firms know opportunities but fail to
exploit them effectively because of market failure
induced divergence in the private and social rates of
return from investments in knowledge and innovation
 Role of optimizing policy maker is to correct these
divergent incentives by fiscal arrangements and grants

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The Policy Dimension
 Evolutionary viewpoint → also a matter of the
knowledge and skill to define a space of possibilities
 Policy makers to create a rich ecology of
organizational and institutional support for
knowledge absorption and generation and to
support the development of the associated
innovative capabilities → adaptive not optimizing
 Innovative capabilities depend on the links between
users, suppliers and non-firm organizations
 Innovation systems → modular (adaptive and
evolutionary)

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