Lecture 7 Knowledge, technology transfer and convergence.
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Transcript of Lecture 7 Knowledge, technology transfer and convergence.
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Lecture 7
Knowledge, technology transfer and convergence.
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Issues discussed today
• The non-rival nature of technological knowledge and its impact.
• Industrial Revolution and Science – engagement rather than marriage.
• The characteristics of technological progress.
• Technology transfer and comnvergence the last 150 years.
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Was there an Industrial Revolution in Britain?
• Recent research in economic history says No, but…
• The classical period of the I R 1780-1830 was ’…a period of incubation in which the groundwork to future growth was laid’ (Joel Mokyr) meaning that
• Intellectual and institutional preconditions were created
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Science and Industrial Enlightenment
• Science had little impact on Industrial Revolution technology.
• Exception: steam engine.
• The European Industrial Enlightenment of the 18th century paved the way for 19th century science based technologies and products
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Old school view
• The Industrial Revolution marked a radical break with the past
• Low or insignificant growth rates were replaced by substantially higher rates in many (all?) sectors
• A large number of sectors became part of the modern economy
• Science became increasingly important as a source of technological change
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New view
• Growth rates were (just a little) higher than in the past but initially only moderately higher
• The modern sector was limited to a few initially small dynamic sectors, such as the cotton industry
• Water mills remained an important energy source in industry
• Science played a minor role in the advancement of technological knowledge until mid 19th century but the knowledge-base increased
• Innovations relied on skilled workers and mechanics
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Old and new estimates
Revised estimates Dean & Cole
TFP National product Per head National product Per head
1700-1760 0.69 0.31 0.66 0.45
1760-1780 0.14* 0.70 0.01 0.65 -0.04
1780-1801 0.14* 1.32 0.35 2.06 1.08
1801-1831 0.41 1.97 0.52 3.06 1.61
Table 6.1. TFP growth and new and old estimates of national product growth in Britain during the Industrial Revolution. Per cent per year.
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Why do new and old estimates differ?
• It’s the index number problem, stupid• We need to estimate the growth in constant
prices• To do so we need quantities of goods produced
and prices • Choice of base year affects results • Fast growing sectors usually experience falling
relative prices• As a consequence early base year implies
higher growth than later base year
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Cotton and beer
• Cotton grows from 10 to 100 units between 1770 to 1800
• Beer from 25 to 50 units• Cotton price falls from 1 to 0.5• Beer price is constant at 1• Increase in output in 1770 prices is 150/35
=4.3 times• Increase in output in 1800 prices is 100/30
=3.3 times
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Lock at panel b for the British case!
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A beer and cotton sector example
• Assume the cotton industry output increases by 150 percent between 1780 and 1830 and that beer output increases by 75 percent.
• Assume furthermore that the weight of cotton in total output is 30 per cent in 1780 and 75 percent in 1830.
• With 1830 sector weights total output grows with
0.75*150 +0.25*75 = 131 per cent, but with 1780 weights only by 97 per cent (0.3*150 + 0.7*75)
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What science does to production
• Saves resources: is there a labour saving bias?
• Eases the constraints of nature.
• Improves quality of products.
• Introduces new products and production processes.
• Widens the resource base for industrial use.
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No long run bias
• Bob Allen maintains that Industrial Revolution occurred in Britain because of high wages and cheap energy
• Labour saving bias in in textile manufacturing .
• Technological progress seems to be neutral in the long run.
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Nitrogen fixing: nature vs. science
• The limiting factor in agriculture is nitrogen in the form of nitrates.
• Bacteria can help fixing nitrogen but the process is slow.
• Haber-Bosch introduced an industrial method to produce ammonia and nitrates from nitrogen, early 20th century.
• Basis for spectacular increases inin yields.
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Quality improvements: light
• Quality improvements are difficult to measure and tend to give a downward bias to real income estimates.
• Price of light has fallen with 3 to 4 percent relative to conventional estimates of price of light.
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New products
• Internal combustion motor
• The electrical motor – thank you Hans Christian Ørsted
• The telephone, the camera, wireless communication etc
• The 19th century gave the first half of the 20th century (almost) everything.
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Widening the resource base
• New steelmaking processes (Gilchrist Thomas) made it possible to exploit phosphorous rich iron ore.
• Pulp fiction needs cheap paper made from wood which changed the resource supply to a 1000 year old production process.
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The peculiar nature of scientific knowledge.
• Technological knowledge is a non-rival good.
• It can be easily diffused.• Patent protection keeps the knowledge in
the public domain and raises access cost only over a limited period.
• Were intellectual property right stimulating R&D? Probably more than inventors concede.
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Technology transfer makes for catch up
• Technological gap makes poor countries grow faster than richer
• if the institutional conditions for absorption and use of new technologies are present,
• which requires openness to trade and foreign investment
• and high scores on educational attainment
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Patent applications is an interesting indicator
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Guide to Figures 6.2-6.4
• Look at under-performers below the negative slope of the regression line.
• Identify the over-achievers, above the line.
• Reconstruction effects: France and Germany.
• Latecomers: Spain and Greece
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Inverse relationship between initial income and growth
AustriaBelgium
BulgariaCzechoslovakia
Denmark
France
Hungary
GermanyGreece Italy
Ireland
Netherlands
Norway
Portugal
Romania
RussiaSpain
SwedenSwitzerland
United Kingdom
Yugoslavia
y = 0.0144-0,0000137x
0.000
0.002
0.004
0.006
0.008
0.010
0.012
0.014
0.016
0.018
0 500 1000 1500 2000 2500 3000 3500
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The 1914-1950 period was an era of closed economies.
Austria Belgium
Bulgaria
Czechoslovakia Denmark
Finland
France
HungaryGermanyGreece Italy
Ireland
Netherlands
Norway
Portugal
Poland
Romania
USSR
Spain
Sweden Switzerland
United KingdomYugoslavia
Albania
y = 2E-06x + 0.0054
-0.015
-0.01
-0.005
0
0.005
0.01
0.015
0.02
0.025
0.03
0 1000 2000 3000 4000 5000 6000
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The expected relationship returns in the Golden Age.
Austria
Belgium
Bulgaria
Czechoslovakia
Denmark
Finland France
Hungary
Germany
Greece
Italy
Ireland
NetherlandsNorway
Portugal
Poland
Romania
USSR
Spain
SwedenSwitzerland
United Kingdom
Yugoslavia
y = -3E-06x + 0.05010.02
0.025
0.03
0.035
0.04
0.045
0.05
0.055
0.06
0 2000 4000 6000 8000 10000 12000
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And why did Britain not keep its industrial leadership?
• Low domestic investments in human and physical capital
• Industrial relations not helpful to technology absorption: Low total factor productivity growth
• Relatively high interest rates were hurting manufacturing but service sector did well
• Financial institutions might have neglected profit opportunities in new technologies? (compare previous lecture)
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UK:s income lead was eroded by slow growth
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UK investments ratios do not catch up until after WWII
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The dynamic disadvantage of an Empire
• UK had favourable access to colonies and dominions
• Most of the empire was composed of low income economies with weak demand for sophisticated new products
• British industry was not compelled to enter into new fast growing product industries
• UK Export/Import ratio low (high) in dynamic (traditional) new sectors (= R.C.A)
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Revealed comparative advantage
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Three convergence stories
• Scandinavia converges to US but only after 1950.
• Argentina starts well but spoils its future.
• Reconstruction effects in Italy, France and Germany.
• Spain is a latecomer.
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Three convergence clubs in Europe
• Early followers :Germany, France, Benelux and Scandinavia. Italy almost made it to this club.
• Golden age catch up: Portugal, Greece, Spain.
• Late followers: Ireland and the former socialist economies.
• The 1990s: The Empire strikes back!
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Do not cry for Argentina!
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Italy starts growing later than Germany and Scandinavia
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Spain opens up to Europe only in the Golden Age.
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Land scarcity was solved by land reclamation