1. Technological Change in a Global Economy
Presented to: Dr. Khurrum S. Mughal
December 25, 2013

2. Group Members 19670 11201 11253 19337 19676 19656 Ghalia Ahmed
Ghazi Nadeem
Junaid Zia
Madiha Younus 
Muslim Habibi
Warda Ashfaq
19670
11201
11253
19337
19676
19656

3. Agenda Impact of technological changes
Relationships between rate of technological change and market structures
Characteristics of innovation and factors that result in successful innovation

4. Technological Change
The overall process of invention, innovation and diffusion in technologies and processes is called Technological Change
Example: Electron microscopes
Impact
New products
Improvements
Cost reductions for existing products
Better ways of managing business operations

5. Technological Change and Production Function
Allow use of fewer input for same level of output
Shift in production isoquant Q Q1

6. Contd. Technological change can be: Input-Neutral Capital Saving
Example: transistors
Labor saving
Example: industrial robots in automobile manufacturing
Input-Neutral
Capital Saving
Labor Saving

7. Technological Change, Productivity and Economic Growth
Labor productivity
Common productivity measure
Labor Productivity = Output
Labor
Productivity of inputs real income
Percentage Increase in Labor Productivity
Country
Increase:
United States
2.9%
Canada
2.5%
Denmark
3.3%
France
4.1%
Italy
4.9%
Japan
6.0%
Netherland
Sweden
United Kingdom
3.8%
Germany
3.2%

8. Contd. Change in labor productivity Measures of productivity
Technological change
Human capital
Capital stock of economy
Change in relative input prices
Measures of productivity
Labor productivity – easy to compute
Total factor productivity – better indicator
Compares changes in output to that in inputs
Knowledge/Technology – single most important source of economic growth

9. Effect of Market Structure on Technological Change
Unresolved Issues
Competitive Markets
Small firms – no funds for R&D
Easily imitated new products – unable to capture all economic profits
Study by Jewkes, Sawers and Stillerman
Investigated origins of 70 major inventions since 1880
Results:
54% – people working alone
35% – individual research laboratories
11% – individuals working with research institutions

10. Contd. Small firms more progressive than larger firms Evaluation
Environment for new ideas
Innovate to survive
Large Firms
Bureaucratic rules
Little motivation to change
Evaluation
Ability
Incentives

11. Effect of Technological Change on Market Structure
Market Structure Technological Change
Example 1: Telecommunication
Example 2: Computer Industry

12. Static vs. Dynamic Inefficiency
Large firms with market power
Facilitate technological change
May cause firm to be inefficient
Static efficiency
Dynamic efficiency
Static efficiency is less important than dynamic efficiency

13. Contd. Effects of Static vs. Dynamic Inefficiency Year
Scenario-I Output
Scenario-II Output
Static Efficiency and 3% Growth in Factor Productivity
Static Inefficiency and 6% Growth in Factor Productivity 1
100.00
90.00 2
103.00
95.40 3
106.09
101.12 4
109.27
107.19 5
112.55
113.62 6
115.93
120.44

14. R&D and Prisoner’s Dilemma
“A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome.”
Example
Cigarette advertising

15. Contd. Situation where R&D is wasteful Firms in duopoly
One firm reduces cost – most efficient
Both firms reduce cost – little benefit
Firm B
R&D
No R&D
R&D
80, 40
160, -40
-40, 120
120, 80
Firm A
No R&D

16. Country-wise Comparison of R&D Efforts
USA
Japan
Duplicate R&D
Share information
Anti-trust laws prevent joint research
Government encourages joint R&D
Fear of falling back – no cut back on R&D
No fear of falling behind

17. Industrial Innovation
Invention
Creation of new ideas
Innovation
Taking those ideas and transforming them into something useful for the society
Diffusion
New product/process becomes widely available
Example: Scurvy (no diffusion)
Invention
Innovation
Diffusion

18. Product vs. Process Innovation

19. Requirements for Successful Innovation
Often no reward for first mover
Examples
Bowmar instruments (pocket calculators)
RC cola (cola drinks)
Electrical musical industries (CAT-Scan technology)
Challenge
Solution
Patents and Innovation

20. Thank You 