The evolution of economic structure under technological development

TitleThe evolution of economic structure under technological development
Publication TypeTyndall Working Paper
SeriesTyndall Centre Working Papers
Secondary TitleTyndall Centre Working Paper 48
AuthorsPan, H.
Year of Publication2004
Abstract

There are obvious gaps between long-term change of economic structure and its principle driving force - technological progress. History has shown the influence of technological progress on economy and current insights in technological development can almost foresee the coming technological waves in next 50 years, but their possible impacts on economy are not yet assessed. The socio-economic system is so complex that its structural change remains intractable. Mainstream economics avoids the problem of structural change by assuming a constant structure in the short and medium terms, but fails to prove itself in long-term projection. On the other hand, non-mainstream economists including historical and evolutionary economists, who have been theoretically challenging mainstream economics' ideas on economic change, recommend an evolutionary perspective to link changes in production inputs including intermediate and primary inputs, in consumption patterns, and in investment structure with technological progress. In this research we aim to simulate the evolution of economic structure under technological development. The basic unit that we study is technical or production processes, which are regarded to constitute a sector's production and to represent specific layers of technology, old or new. The phasing out or in of the old or new technical processes changes a sector's production form, which in turn induces structural change of economy. The relative position of a technical process in a sector is determined by the installed capacity or capital stock required by the process and that the capacity is driven by investment, namely investment in R&D and investment in application of the R&D achievement to production processes. The former depends on both the public and private sectors' investment behaviour and policy regime. The latter follows the descriptive theory of the technology life cycle, which in turn depends on the investment in R&D. Driven by these two sorts of investment, technologies develop, production processes change their position, and economic structure evolves along the trajectory of technological development. An exercise on Chinese electricity industry shows that the phasing in of nuclear power generation under high investment will greatly change the sector's form in next 30 years.

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