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]] 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|pages=|oclc=290503961}}</ref>

==Significance==

Identifying ''investment-specific'' technological progress within an [[economy]] will determine how an individual behaves in reaction to new technology, i.e. whether the individual will invest their [[savings]].<ref>{{Cite journal|last1=Gort|first1=Michael|last2=Greenwood|first2=Jeremy|last3=Rupert|first3=Peter|date=March 1, 1999|title=How Much of Economic Growth is Fueled by Investment-Specific Technological Change?|url=https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/1999-economic-commentaries/ec-19990301-how-much-of-economic-growth-is-fueled-by-investment-specific-technological-progress.aspx|journal=Economic Commentary|publisher=Federal Reserve Bank of Cleveland|volume=|pages=1|via=}}</ref> If "investment-specific" technological change is the main source of progress in an [[Industry (economics)|industry]], then the individual would invest in firms to purchase and develop new capital, as technological improvements result in improvements to the goods available to consume. Firms may also choose to train current employees in the new technology or subsidize the education of new employees in the operation of the new technology. As such technological progress has an impact upon the labour market.<ref>{{Citation

| last=Krusell | first=Per

| title= Investment-Specific R and D and the Decline in the Relative Price of Capital

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[[Image:figure4.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 |authorlink3author-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>

==References==