Investment-specific technological progress: Difference between revisions

Revision as of 04:33, 28 January 2010

Revision as of 09:59, 14 April 2010

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==Introduction==

To model how something is [[Production theory basics|produced]], think of a box that in one end takes in [[inputs]] such as [[Labour (economics)|labor]] (employees) and [[Capital (economics)|capital]] (equipment, buildings, etc.) and in another end spits out the [[final good]]. With this picture in mind now one can ask, how does technological progress affect production? One way of thinking is that technological progress affects '''specific''' inputs (arrows going in) such as equipment and buildings. To realize the benefits of such [[technological change]] for production these inputs must be purchased. So for example, the advent of the [[Integrated circuit|microchip]] (an important technological improvement in computers) will affect the production of [[Ford]] cars only if Ford Motor Co.'s assembly plants (the red box) invest in [[computers]] with microchips (instead of computers with [[punchpunched cards]]) and use them (they are one of the arrows going in the box) in the production of [[Ford Mustang|Mustangs]] (the arrow coming out). As the name suggests, this is ''investment-specific'' technological progress---it requires investing in new [[machines]] or buildings which contain or ''embody'' the latest technology. Notice that the term ''investment'' can be general: not only must a [[business|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 (Greenwood & Jovanovic 2001) .

==Importance==