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In: Economics

Consider the role of technological progress in economic growth by reference to the various theories of...

Consider the role of technological progress in economic growth by reference to the various theories of growth covered: the Swan-Solow growth theory, endogenous growth theory and the demand-led growth theory.

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Expert Solution

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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