The Determinants of Technical Progress

In the last chapter, we examined in some detail the role of technical progress in the economic growth of the five economies in our study. We attempted to measure the rate of technical progress by alternative methods. Without exception, we found that technical progress has played an important part in the rapid growth of all the economies during the subject period. However, the estimation of the rate of technical progress has so far been confined to the assumption of exogenous technical progress. We assumed that technical progress just appears like manna falling from heaven; it is costless and does not depend on other economic variables in our model. It is perhaps true that many of the factors that govern the rate and direction of technical progress are outside the usual boundaries of economics. Nevertheless, the treatment of technical progress as entirely exogenous is clearly unrealistic. Some factors we customarily include as variables in economic models may influence the rate of technical progress in important ways. In particular, it is very likely that technical progress can be influenced by investment activities. In the last decade or so, some attempts have been made to construct macro-economic models with the assumption of endogenous technical progress. This brighter side of the story has unfortunately not penetrated the empirical literature on growth and distribution.