Economics of Technology and Innovation

 In the most fundamental sense, there are only two ways of increasing the output of the economy: (1) increase in the number of inputs that go into the productive process, or (2) think of new ways in which more output can be produced from the same number of inputs. Especially for an economist it is curious to know which of these two ways has been more important - and how much more important. Essentially what Abramovitz did was to measure the growth in the output of the American economy between 1870 and 1950. Then he measured the growth in inputs (of capital and labor) over the same time period. He then made what were thought to be reasonable assumptions about how much a growth in a unit of labor and how much a growth in a unit of capital should add to the output of the economy. It turned out that the measured growth of inputs (i.e., in capital and labor) between 1870 and 1950 could only account for about 15% of the actual growth in the output of the economy. In a statistical sense, then, there was an unexplained residual of no less than 85%.

Since then one of the major focal areas for researchers in the field of economics is technological change, the dynamic process at the root of economic growth. The bulk of economic growth - 87.5% according to Nobelist Robert Solow's (1957) initial estimates, stems from technological change: improvements in efficiency and effectiveness of industry. And Solow's estimates do not even correct for the "hedonic" price changes needed to account for improvements in products' features and quality, nor for the development of new goods and services. To understand how to achieve the kinds and amount of economic growth we desire, we must understand technological change and its role in the industries where it occurs.

Technological change has many facets. Technological change includes, as well as creation of new products, quality improvement and efficiency gains for existing products. Technological change and innovation bring financial reward to companies, which - if they keep succeeding ahead of the competitors - increase their market share. Thus, these and other matters must be understood, to be able to design appropriate policy, to understand industry competition, to understand growth.

In this context, I would like to express my sincere desire to pursue my PhD degree in the above mentioned area with an aim of finding out the role of technological change and innovation in promoting Small and Medium Enterprises (SMEs) in advanced economics and lesson to Least Developed Countries (LDCs) like Nepal.