The Influence of Technology on Economic Expansion

1. Overview

During the 1950s and 60s, economists largely attributed economic growth to capital accumulation. They believed that boosting investments would expand production capabilities, resulting in greater future output. However, with the integration of sophisticated technologies—from software development to genetic engineering—technology has emerged as a central catalyst of global economic expansion.

Rather than being a secondary factor, it's now seen as the engine driving productivity, captured by the concept of Total Factor Productivity (TFP). As described by Abramovitz’s “turning point” theory, TFP accounts for the portion of output not directly explained by labor or capital inputs. This is largely due to the spillover effects of technology—where innovation within one company can benefit an entire sector or even society at large.

Economic growth reflects a rise in the volume of goods and services produced over time. This can stem from an increase in resources—such as population growth, migration, or more capital—or simply from utilizing these resources more effectively.

In today's world, technology is deeply embedded in daily life—at work, at home, and in leisure. It drives productivity, enhances efficiency, and improves living standards. Most importantly, it underpins the "new economy," characterized by rapid information exchange.

2. Innovation and Economic Progress

Technological development is inherently dynamic and rarely linear. It fundamentally revolves around learning, which can occur in several ways:

• Learning by doing: Workers improve through hands-on experience.
• Learning by using: Adoption of tools or systems fosters learning through usage.
• Learning by searching: Involves conducting foundational research, though costly and uncertain, often leading to breakthrough discoveries.

Numerous studies affirm that technological innovation—particularly through R&D—plays a vital role in enhancing productivity in both developed and developing nations.

3. Efficiency and Output Gains

Some economists believed productivity growth would slow without significant IT advancements. However, despite the recent surge in IT investment, the growth in productivity hasn’t shown a drastic increase post-computer revolution.

One explanation is the varying effect of IT across industries. Manufacturing sectors, due to their tangible outputs, tend to show clearer productivity gains compared to services. Step and Hicks argued for evaluating productivity based on service output rather than monetary input.

4. Employment and Labor Market Shifts

Technology’s effect on labor demand is complex. While classic models predict that innovation raises labor productivity and thus increases employment, automation and labor-saving tech can reduce demand for certain roles.

The uneven effects of tech on employment—especially its potential to replace certain job types—have drawn attention from both researchers and policymakers. This selective replacement leads to wage and skill polarization.

5. Future Challenges and Emerging Trends

A critical challenge is the declining influence of national economies in favor of globalized markets. Technology, particularly IT, simplifies and accelerates trade, increasing international competition.

Additionally, prioritizing technology can stifle other sectors. As more resources are funneled into tech—especially high-skilled labor and R&D—traditional industries may lag behind.

Finally, the rapid pace of technological and social change poses long-term societal questions. While science races ahead, the broader impacts on societal structures and economic equity are only beginning to unfold.