Induced Technological Change in United States Manufacturing Industries

Abstract

<p>Recently, technological change has received increasing attention from researchers. One of the many questions addressed has been concerned with the forces that govern the rate of inventive activity and. hence technological change. Two distinct strands of argument have appeared in historical succession. Broadly speaking, these can be distinguished as pertaining to either the supply of or demand for inventive activity as the major determinant of technological change. First, following the historical progression, was the argument that the supply of inventive activity (the development of basic science and occasional appearance of inventive genius) was the crucial factor in determining its rate, in which case inventive activity was treated as exogenous to the economic system. Recently, however, the argument seems to have shifted in favour of the primacy of the demand for inventive activity. The proponents of this argument suggest that inventive activity is governed by market forces, which would make it an endogenously determined variable. Demand for inventive activity is a derived demand. Although, in this respect, the role of final product demand has been stressed, there is yet no consensus as to what other variables may affect the derived demand for inventive activity. Which of the two above mentioned positions accurately represents the generation of inventive activity has implications for policy designed to influence technological change. The present study is an attempt to explore the role of supply and demand forces in determining the rate of inventive activity. Empirical investigation, based on a simple model of induced technological change, is carried out for 11 manufacturing industries in the United States. The evidence indicates that demand for inventive activity is a significant determinant of inventive activity in the industries studied. The demand side variables (output, relative factor prices, and the state of technology) performed fairly well in explaining R&D expenditures (as an index of inventive activity). Unfortunately, the evidence about the effect of the supply of inventive activity (represented by the state of knowledge in the respective industries) remains inconclusive. However, the results in conjunction with the individual industry characteristics indicate that the effect of supply side of inventive activity is much more complex than assumed in the present study. This leads to certain suggestions for further research which will take the supply side of inventive activity into consideration more effectively.</p>