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13 Lecture AAE 374 Fall 2008 Overview: Growth and Tech Tech as a Non-Rival "Good" IRS and related issues "Intellectual Property" Solow Residuals and Tech Growth Guns, Germs and Steel: Technological transfer and Adoption Explaining Growth Cannot fully explain differences in world income levels with identical technologies and differences in factor accumulations Similarly, growth rates only partially show what would expect from a conditional convergence perspective We also see continuing long-run growth, contradicting key implication of basic Solow model Growth and Technology Consider technology as a form of knowledge Consider some ways of measuring tech See what happens if incorporate technology into basic Solow framework (the Geek Model of Technological Progress) Suggest Geek model still does a poor job of accounting for observed patterns implications for government policy Rival versus Non-Rival; Excludable vs. Non-Excludable Rivality and Excludability Essence of non-rival goods is that once created, they may leak out and generate further uses and benefits Note that whether or not a good is excludable depends on laws, rules and their enforcement--i.e., excludability is a human construct. "Intellectual property" law (patents, etc.) is in fact all about making ideas into excludable goods. This is of course an area of huge international dispute--more on this later. Fixed costs & increasing returns Economically relevant characteristic of knowledge because of its nonrivalrousness: subject to large fixed costs Computer software: idea-based product that have huge fixed costs Producing the first copy of Windows Vista took thousands of hours of engineering time. However, the marginal costs of producing the second, third... copies is really only a few pennies. Fixed costs & increasing returns If each of us with a DVD-R drive could simply copy the Windows software and sell it, what would happen to the price? (E.g. Nehru place in India) Microsoft would be unlikely to ever recoup their fixed costs, and Bill Gates would have to sell his mansion (or its least its mood-activated sound system). Ubiquity of fixed costs in knowledgeintensive activities suggest that these sorts of IRTS problems are non-trivial Has implications for trade and trade policy Copyright and Legally-Generated Excludability If not for Copyright, it is possible that Gates (via IBM) would have decreased the investments to create that product. Reasons this might/might not have this effect? "Intellectual Property" is not one big thing: copyrights, patents, trademarks, service marks, trade secret... Copyrights DO NOT EQUAL Patents, different histories, areas of law and issues Copyright issues Issues this type of case raises? Bigger examples for North? Bigger examples for South? Patents and Legally-Generated Excludability Software Patent law makes it illegal to replicate "key innovations" of existing software. Some examples from the European Patent Office (the US is even more in this direction): (Source: "Patent Absurdity", The Guardian 6/23/05. See Course Page.) Issued a patent on the progress bar on One accepting payment via credit cards Effects this might have on technological development? Legally-Generated Excludability Enforcement and definition of these types of laws will thus influence the generation of new technologies in a market economy. Douglas North argues that the creation of IP rights has in fact been the key to era of modern (sustained) economic growth. It also means that those who gain legal exclusivity have monopoly power and will charge higher prices (i.e., prices higher than the marginal cost of producing the product). Such higher pricing will exclude some people from the new goods. Tech and Tech Change using the Production Function What do these look like? Tech and Tech Change using the Production Function Inferring Technology given data on output and Accumulation Measuring Technological Change as a `Residual' Measuring Technological Change as a `Residual' Grow, GROW, GROOOOW! GGS: Tech Transfer Lots of ways we can think of tech can be transferred (Think of some) Barriers to these types of transfers Guns, Germs and Steel (Economic Geography and Tech Transfer) 5-9 Areas where food production rose independently Wheel, writing, later technology diffused along food lines Ancient technological transfer (huge jump in A) Role of Ancient Tech Transfer... Why Ask? Basic start of agriculture sets "Time 0" for growth models: 3500 BCE for Western Europe vs 900 CE for North American Same exogenous forces which allowed "food package" transfer brought in other tech shocks ("Why reinvent the Wheel?") Mechanisms are also relevant for today Determinants of Technology Transfer (once was Geography) Geographic tech transfer and "Returns to scale" East-West geography and sharing of technology Technology is also useful in these areas: e.g. temperate climate similar from Portugal to Japan so technology "works" Plus a lot of people working on things useful to each other: crop bundles from Middle East -> Europe, Egypt, India crop bundles from South China -> SE Asia, Pacific Why? Geographic, climate barriers Sub-saharan Africa: Climate, disease kills off livestock and crops. Technology is not suitable for the environment so can't transfer to or through Sahara. What happened to European colonists in tropical Africa? No livestock in South Africa until CE 100 and crops 1652 CE when Europeans got there (but similar climate) North America: Central American "bottleneck" Consequences Llamas take over 5000 yrs to go from Andes to Central America Lima Beans, common beans, chili peppers, squash independently developed in Western Hemisphere while most crops in Eurasia have a single source. "re-engineering" of corn varieties to make them productive in North America (costly imitation) Discussion "Natural" returns to scale (e.g. software industry in OECD vs South) Adoption may not be feasible given environment Channels of transfer have to work If channels work, imitation/adaptation may be costly Next Time: A Bit more on Growth Fast vs Slow Policy Implications Tech and Institutions (Brad) Midterm on Wed Next Week: Tues Review! 7:00 pm, Room TBA

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