Technological Change, Geography of

Technology: A Unique Component of Production

The word technology typically describes a material item, such as an oven or a computer. Academics, however, define technology differently—that is, as the set of rules and ideas that direct the production of an oven, computer, or other economically meaningful products. Under this definition, a technology is like a recipe used in the kitchen. A given technology will call for raw or semifinished materials as ingredients. To carry out the recipe and create a finished product, people apply their skills (human capital), tools (physical capital), and labor. Among these required components, capital, labor, and raw materials are all mostly privately held. Technology, however, bears some resemblance to a public good.

Two characteristics distinguish public from private goods: nonrivalry and nonexcludability. To grasp technology's quasi-public nature, consider computers, mobile phones, and other electronic devices that contain semiconductors. Semiconductors in turn are the product of a particular set of rules and ideas about electrical conductivity. Like all technologies, the ideas that permit the building of semiconductors are nonrivalrous, meaning that one person's sharing the recipe for semiconductors with another will not diminish the owner's knowledge of it (unlike, say, sharing a private good such as a sandwich, which leaves less for the owner). The technology is also at least partially nonexcludable: It is hard for the owner to prevent another from learning about semiconductors, such that the acquirer might employ them for his or her own gain.

If technologies were “pure” public goods, a new and better semiconductor design created in one location would be immediately, costlessly, and universally available. Entrepreneurs in Paris and Bengaluru could instantly apply the electronic innovations that researchers produced in San Jose. Technology would be without meaningful geographical dimensions because of its perfect nonexcludability. Do we live in that kind of world? One way to answer this question is to compare countries’ overall technology levels. Researchers often estimate levels of technology using “total factor productivity” (TFP), which accounts for the efficiency with which an economy or industry combines its factors of production. Simply, an economy with higher TFP can produce more output with less input because its deployment of technology is more sophisticated. TFP is not a perfect measure of technological sophistication, since nontechnological factors might cause these efficiency differences, but it is the most widely accepted indicator available. Table 1 shows TFP levels as ratios to the U.S. level for a handful of economies. Note the large gap between the United Kingdom and India. The United States, Italy, France, and the United Kingdom have productivity levels that are roughly comparable with one another. But each is between four and seven times the level of productivity enjoyed by India, China, Kenya, and Zaire. By this measure, rich countries are much more technologically advanced than poor countries, and these large differences remain even when we control for differences in the kinds of goods that [Page 2780]countries make. For example, even if international productivity levels for a particular industry are compared, rich economies tend to be more productive than poor ones. This kind of evidence suggests that we do not live in a world where technology is a pure public good.

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