Investment-specific technological progress: Difference between revisions

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'''Investment-specific technological progress''' refers to progress that requires [[investment]] in new equipment and structures embodying the latest technology in order to realize its benefits. To model the influence of [[technological change]] upon production the influence of a technological change upon the specific inputs (i.e. [[Labour (economics)|labor]] and [[Capital (economics)|capital]]) of a [[Production theory basics|production]] model is assessed in terms of the resulting effect upon the [[final good]] of the model (i.e. goods and services).

To realize the benefits of such technological change for production a [[business|firm]] must invest to attain the new technology as a component of production. For example, the advent of the [[Integrated circuit|microchip]] (an important technological improvement in computers) will affect the production of [[Ford Motor Company|Ford]] cars only if Ford Motor Co.'s assembly plants invest in [[computers]] with microchips (instead of computers with [[punched cards]]) and use them in the production of a product, i.e. [[Ford Mustang|Mustangs]]. Investment-specific technological progress requires investing in new production inputs which contain or embody the latest technology. Notice that the term investment can be general: not only must a firm buy the new technology to reap its benefits, but it also must invest in training its workers and [[management|managers]] to be able to use this new technology.<ref>{{Cite book|last1=Greenwood|first1=Jeremy|url=https://www.worldcat.org/oclc/290503961|title=New developments in productivity analysis - Accounting for Growth|last2=Jovanovic|first2=Boyan|date=2001|publisher=University of Chicago Press|others=Hulten, Charles R., Dean, Edwin., Harper, Michael J., Conference on Research in Income and Wealth.|isbn=0-226-36064-4|___location=Chicago|oclc=290503961}}</ref>

==Significance==

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[[Image:kid1.jpg|thumb|400px|center|Figure 1]]

An example of investment-specific technological progress is the [[microwave oven]]. The first microwave oven cost between $2000 and $3000 US and was housed in refrigerator-sized cabinets. Through regular technological investment the microwave industry has developed into a competitive market, with small compact units in many households.<ref>{{Citation | last=Gallawa | first=J. Carlton | title=Who Invented Microwaves | url=http://www.gallawa.com/microtech/history.html | year=2005 | access-date=2006-06-02 | archive-date=2017-12-12 | archive-url=https://web.archive.org/web/20171212162021/http://www.gallawa.com/microtech/history.html | url-status=dead }}</ref> Many industries have adopted the microwave through capital or research investment, applications outside the food industry include the [[iron]] and [[steel]] industry as a heating tool<ref>{{Cite journal|last1=Yoshikawa|first1=Noboru|last2=Ishizuka|first2=Etsuko|last3=Mashiko|first3=Kenichi|last4=Chen|first4=Yan|last5=Taniguchi|first5=Shoji|date=2007|title=Brief Review on Microwave (MW) Heating, Its Application to Iron & Steel Industry and to the Relevant Environmental Techniques|url=http://joi.jlc.jst.go.jp/JST.JSTAGE/isijinternational/47.523?from=CrossRef|journal=ISIJ International|language=en|volume=47|issue=4|pages=523–527|doi=10.2355/isijinternational.47.523|issn=0915-1559|doi-access=free}}</ref> and the [[chemical industry]] as a tool for [[organic synthesis]].<ref>{{Cite book|url=https://www.worldcat.org/oclc/945552571|title=Milestones in microwave chemistry|others=Keglevich, György|date=22 March 2016|isbn=978-3-319-30632-2|___location=Switzerland|oclc=945552571}}</ref>

==Measurement==

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One approach to measuring the price of technologically improved structures is to assign newer building a higher value due to the embodyment of the new technology with the design.<ref>{{Citation | last1=Gort | first1=Michael | last2=Greenwood | first2=Jeremy | last3=Rupert | first3=Peter | title=How Much of Economic Growth is Fueled by Investment-Specific Technological Change? | journal=Economic Commentary, Federal Reserve Bank of Cleveland | date=March 1, 1999 }} </ref> In particular, they should rent for more, i.e. renting a square foot in a new building is much more expensive than renting a square foot in a building forty years old.

[[ImageFile:figure4Rent in dollars per square foot, as function of age in years.jpg|thumb|400px|center|Figure 3]]

Figures 2 and 3 suggest that '''investment-specific''' technological change is operating in the US. The annual rate of technological progress in equipment and structures has been estimated to be about 3.2% and 1%, respectively.<ref>{{Citation | last1=Greenwood | first1=Jeremy | last2=Hercowitz | first2=Zvi | last3=Krusell | first3=Per |author-link3=Per Krusell | title=Long-Run Implications of Investment-Specific Technological Change | journal= American Economic Review | volume=87 | issue=3 | year=1997 | pages=342–362}} </ref>