The technology can be regarded as primary source in economic development and the various technological changes contribute significantly in the development of underdeveloped countries.
Technological advancement and economic growth are truly related to each other.
The level of technology is also an important determinant of economic growth. The rapid rate of growth can be achieved through high level of technology. Schumpeter observed that innovation or technological progress is the only determinant of economic progress. But if the level of technology becomes constant the process of growth stops. Thus, it is the technological progress which keeps the economy moving. Inventions and innovations have been largely responsible for rapid economic growth in developed countries.
The growth of net national income in developed countries cannot be claimed to have been due to capital alone. Kindleberger observed that major part of this increased productivity is due to technological changes. Robert Solow estimated that technological change accounted for about 2/3 of growth of the U.S. economy; after allowing for growth in the labour force and capital stock.
In fact, the technology can be regarded as primary source in economic development and the various technological changes contribute significantly in the development of underdeveloped countries. The impact of technological change on production functions can be illustrated with the help of following diagrams.
In the above figures 1 to 3 R’ is an isoquant of production function before technological change and R’ represents the same quantities output after the innovation in the first figure. The innovation is neutral with respect to labour and capital. The new production function R shows that the same output can be produced with less labour and less capital after technological advancement.
The second figure shows that innovation is labour saving and R’ shows that same output can be produced with lesser inputs but the saving of labour is greater than that of capital. The third figure shows that the innovation is capital saving and R’ shows that the same output can be produced by less inputs after technological change but saving of capital is greater than that of labour.
It is generally assumed that the technological advancement is even more important than capital formation. But the capital formation alone can bring out economic development to a limited extent and the progress stops if there is no technological change. A country cannot remain dependent on the import of technology. A nation that spends more on science and technical research will tend to grow faster than another country accumulating more capital but spending less on technological.
In the first figure (4) the country A concentrates on accumulation of more capital resources while in second figure 5, country B focuses attention on technological aspects but does not regulate the accumulation of capital. It is clear that the progress of country B is faster than that of country A due to the high rates of technological development. The concept that technological progress is more important than capital formation is illustrated with the help of production function in the diagram 6.
In the figure 6, OP represents the production function which rises to OP,, OP2 and OP., with technological progress. On the production function OP if amount of capital per worker raised from Rs. 150 to Rs. 200, the output per worker of labour is raised from SM to XM1, when capital per unit of labour is Rs. 300 the output per labour is. ZM,. The main objective of technological progress is to make a better utilization of labour and other resources and hence the production function shifts upward which means that more output per labour can be obtained by the same amount of capital per worker.
The quantity of capital per worker remains at Rs. 150, the production per worker goes on increasing from SM to NM. This is due to the upward shifting of the production function. In the same fashion, more production can be produced at other levels of capital intensity. Thus, technological progress results in shifting the production function upward which enables more output per labourer with same amount of capital per worker.