In general, a nation strives for achieving technological
progress through leaps and bounds. For it puts them on a higher
pedestal in manufacturing, productivity, etc. These three growth
models suggest us the same. So, let's take a gander at what is the
role of technological progress in economic growth in the purview of
these models:
- Swan-Solow growth theory: A neoclassical model essentially
shows us that economic growth is highly influenced by increase in
capital accumulation, labor growth, and of course the increase in
productivity which is referred to as the technological progress in
this case. So when the technology progresses, the productivity
increases which contributes to the economic growth as now the firms
are able to produce more at the same time thereby increasing the
output. In the Cobb-Douglas like production function Y, if we make
an assumption that there will be constant returns for output
increasing at a certain rate, then the technological progress plays
the sole role in the increase of output per worker.
- Endogenous growth theory. This is an economic theory which
states that economic growth is due to a change in the result of
internal processes. In specific, the theory says that the
enhancement of a country's human capital leads to economic growth
through the progress in technology thus contributing for efficiency
in production. This very well challenges the neoclassical model
which focuses on external factors for economic growth. Innovation
in technology and human capital is the primary factors for economic
growth according to this model. Increased funding on technology
further pushes towards economic growth.
- Demand led growth theory: a technological progress is directly
linked with capital formation, and also we must note that a
technological progress doesn't seem possible without capital
formation. This claim is understandable and quite relevant as well.
When a demand starts to gradually surge in an economy, the firms
aim for advanced manufacturing techniques, therefore new
machineries are acquired which increases capital formation. This
capital formed thrusts the technological progress which increases
the output produced by the firm. And with efficient leverage of the
same, the firms achieve economies of scale thus increasing the
profitability as well.
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