THEORIES OF
TECHNOLOGICAL
CHANGE
Definitions and Concepts
Definitions and Concepts
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Technological change: improvements in the
products, production processes, material and
intermediate inputs and management methods in
the economic system
The study of technological change analyzes:
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The sources and the direction of potential improvements
The selection of actual changes from the long menu of
potential changes
The process of the introduction of such changes
The impact of such introductions
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Definitions and Concepts
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The three stages in the technological change process:
The Schumpeterian trilogy
The first stage → invention process: the generation of
new ideas
The second stage → innovation process: the
development of new ideas into marketable products and
processes
The third stage → diffusion: the new products and
processes spread across the potential market (that is
where the impact of new technology occurs and is
measured)
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Definitions and Concepts
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The trilogy is not a linear process in which invention
automatically leads to innovation which
automatically leads to diffusion
At each stage there is a selection process
There are extensive feedbacks that a linear process
does not represent
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As diffusion proceeds, expectation of profit may feedback
to the invention and innovation process
The expectations of the returns to technologies represent
the incentive to generate and introduce new technologies
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Definitions and Concepts
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Product innovation: the generation,
introduction and diffusion of a new product
Process innovation: the generation,
introduction and diffusion of a new production
process
Organizational innovation: changes in
management methods
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Definitions and Concepts
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Science is associated with the early stages in the
trilogy, say invention, whereas technology is often
associated with later stages in the trilogy
Technology: as activities generating advances close
to market, which will yield private gain
Research and development (R&D) process: basic
and applied
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Basic research: relate closely to the invention process
Applied research: relate closely to the innovation stage
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Definitions and Concepts
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Sources of technological improvement:
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R&D
Learning of various kinds, design, reverse engineering and
imitation
Licensing agreements and collaboration agreements
Acquirements from the suppliers of capital goods
Technological change: dynamic, involving risk and
uncertainty
Technological and commercial risk: market failuregovernment intervention- policy making
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Technology and Innovation:
The Neoclassical Viewpoint
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Technology as a set of fully known blueprints, codified knowledge
available from the “universal blueprint library”
Producing the particular level of output at a minimum cost given the
knowledge of the relative prices of the factor services (technology)
The flow of new knowledge, of inventions and innovations treated as
outside the framework of economic models, as exogenous variables
Link between technical opportunities and economic choices
(productivity, the elasticity of substitution, factor intensity)
What determines the production set if not contained in a universal
library?
 Specified by the knowledge contained within the firm
 How about any changes of technique that needs learning and the
growth of new knowledge?
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Technology and Innovation:
The Neoclassical Viewpoint
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The state of technical arts ‘manna from heaven’ →
knowledge as a non-rival good
Knowledge could be used any number of times by any
number of firms to produce any quantum of output or
indeed to develop new knowledge
Knowledge is costless to transmit but not costless to
absorb
Present state of accumulated knowledge matters
Fact: knowledge costly to produce, costly to absorb and
absorptive capacity depends on prior acquisition of
knowledge
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Technology and Innovation:
The Neoclassical Viewpoint
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Differences in innovation possibility sets are
the rationale of different production possibility
sets
Learning depending on experience by itself
diversifies between firms generating different
innovation locus (locally bounded pattern of
technological development)
Creativity; local and radical
Why different capabilities to innovate and to
produce between firms?
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Evolutionary Approach
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How and why do firms differ in their productive
capabilities?
The focus is on adaptive response that is also creative
Local rationality but variation (not uniformity)
Firm is a creative, imaginative entity and the outcome of
ongoing and unfinished process of organizational design
Penrose “the capability theory of the firm” → the
competence of the firm
The central feature of the capabilities perspective lies in
its link with the creation and exploitation of knowledge →
continual development of capabilities and creating new
ones, “routines”
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Technical Change and Development from
an Evolutionary Perspective
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Why the technological change and development is
an evolutionary problem?
It requires:
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Variation in performance relative to international
competitors
Structural change in domestic and international economies
(selection)
Generation of innovation to keep pace with world
developments
Three concepts of building blocks of economic
evolution: variation, selection and generation
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Technical Change and Development from
an Evolutionary Perspective
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Variation
 Differences between firms in their economic performance
traceable to the differences in their technological and
organizational capabilities
 Idiosyncratic dimension of firms
 Development by imitation and dynamic competition
Selection
 The competitive process by which the different technological
capabilities acquire different levels of economic significance over
time
Variation and selection → generation
 Creative capacity “innovative variation”
The nature of the firm as an experimental agency embedded in
market process as well as its nature as a productive agency is at
the forefront of the evolutionary analyses of technological change
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The Policy Dimension
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Science and technology policy versus innovation policy
 Innovation policy ‘much broader’
It is concerned with the economic exploitation of practical
knowledge with the flow of resources to support
knowledge accumulation within and between firms
Classical viewpoint → firms know opportunities but fail to
exploit them effectively because of market failure
induced divergence in the private and social rates of
return from investments in knowledge and innovation
Role of optimizing policy maker is to correct these
divergent incentives by fiscal arrangements and grants
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The Policy Dimension
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Evolutionary viewpoint → also a matter of the
knowledge and skill to define a space of possibilities
Policy makers to create a rich ecology of
organizational and institutional support for
knowledge absorption and generation and to
support the development of the associated
innovative capabilities → adaptive not optimizing
Innovative capabilities depend on the links between
users, suppliers and non-firm organizations
Innovation systems → modular (adaptive and
evolutionary)
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