Technical Change and Efficiency

Technical change plays a central role in dynamic economics. Economic theory considers technology as the main driving force behind economic growth of capitalist economies. From an economic viewpoint three aspects of technical change have been discussed as important in the current economic literature. Technological progress embodied in labor and capital inputs, or disembodied in a time-varying form has focused on the effects of technology in improving factor productivity over time. Optimal rules of switching from one technique to another so that the economies of scale can be exploited over time have been widely investigated in modern theories of economic growth. At the microeconomic level the specification of technological diffusion and the way it affects the dynamic production process have provided an active field of modern research. One major implication of this research has been to modify the production frontier parameters, so that the impact of technological substitution and updating can be incorporated. Finally, the multi-stage aspects of the production process and the need for flexibility rather than fine tuning have been evidenced in the modern technology-intensive industries. The whole new field of flexible manufacturing systems, which is discussed in some detail in Chapter Five deals with these multi-stage aspects of the production process.