Technology and Economic Development (and War)

By Yadira & Logan

Our team read the article The impact of information technology on postwar US economic growth. The paper highlighted the crucial role that IT played in economic growth for the United States between 1947 and 2010. The Bureau of Economic Analysis provided a significant amount of industry-level data, but they also made modifications building off Jorgenson, Ho, and Kevin Stiroh’s work to derive their industry-level production account produced input and output tables which included 86 industries – 6 IT producing, 41 IT using, 40 non IT using. They found that information technology producing (IT) industries accounted for only 1.7% of value-added in the US economy during the post-war period (1947-2010). However, they contributed 7.6% of postwar econ growth and 32.8% of postwar productivity growth. This shows that the IT industry boosted worker productivity far above the money that was invested into it. This is a great example of how technological development leads to economic growth. 

Current Views 

Recently, the popular discussion about technology and economic growth has shifted to that of a “new Cold War.” With Russian military aggression becoming harder for the West to ignore, and an increasing (perceived or real) threat from China to the Western, democratic world order it is widely believed that both sides of a Western-Russian/Chinese axis will drastically increase investments in technologies. Global economic growth may increase long-term thanks to this renewed commitment. This assumption is based on past performance. In 1900 global GDP was $3.4 trillion (adjusted to 2011 USD) in 2020 global GDP was $112.7 trillion. During that time the global population increased by about 5 fold by productivity increased by about 33 fold. Technology is the force behind this leap. The first Cold War produced the technology that kick-started the internet and the information age we live in today. The author of the recent Wall Street Journal article The World is in Crisis and that is Good for the Economy argues that without geopolitical tensions between autocratic states like China and Russia the US would not have focused on bringing chip production back within its borders and thus would have invested less than it has in the last few years. China’s growing independent technological research in areas such as Artificial Intelligence could also spur competition in the US and other Western Democracies.

How it applies to what we have learned in class

At a basic level, we understand that if the global population grows, the global economic output should grow as well because more people will be working and buying goods. However, we have seen that since the early 1900s global GDP has grown faster than the population. Technology explains this extra growth. Each worker can, in theory, become more productive and earn more (for themselves or others) with the same level of resources. This relationship between productivity and growth can be captured by the Output per worker- Capital per worker graph we studied in class. If we follow along one of the curves we see that the more capital you supply to a worker the higher their output which makes intuitive sense. But we also notice that at high levels of capital per worker we get diminishing returns to productivity. When we improve our technology, however, we shift this output function up resulting in a new function wherever output-capital pairing is higher. Thus, with the same resources as before we have grown the economy.

Citations

Blanchard, O. (2016). Macroeconomics (7th ed.). Pearson. 

Jorgenson, D. W., Ho, M. S., & Samuels, J. D. (2016). The impact of Information Technology on postwar US economic growth. Telecommunications Policy, 40(5), 398–411. https://doi.org/10.1016/j.telpol.2015.03.001 

Yu, S. (2022, April 22). Opinion | the world is in crisis, and that's good for the economy. The Wall Street Journal. Retrieved April 25, 2022, from https://www.wsj.com/articles/world-in-crisis-and-good-for-economy-growth-gdp-recession-inflation-technology-innovation-semiconductors-china-taiwan-ukraine-starlink-musk-11650634091