General Purpose Technologies and Economic Growth

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Summary: comprehensive outline of the importance of GPTs
Review: Academic attention to the relationship between economic growth and drastic innovations is relatively new. Elhanan Helpman's book considers a certain type of drastic innovations, termed General Purpose Technologies (GPTs). As the term already makes clear an innovation qualifies as a GPT when it is on the one hand general in its purpose and on the other hand when it is characterized by innovational complementarities. This approach has resulted in an integrated collection of original contributions providing major insight in the importance of GPTs by approaching the problem at stake from both a theoretical and empirical point of view. In addition, this composition of high-quality papers may be the foundation of and may induce future research in this new area of economic growth theory. After a short introduction, Richard Lipsey, Cliff Bekar and Kennth Carlaw first consider the theoretical literature, in some way complementary to GPTs, to obtain a comprehensive working definition. By focussing on both appreciative and formal theories they characterize the set of technological advances that is induced by the introduction of a new GPT. In their analysis they introduce the model of Helpman and Manuel Trajtenberg (chapters 3 and 4) which tracks the effects of a new GPT on macroeconomic aggregates and considers the process of a new GPT diffusion. This model analyses long-run dynamics in the form of repetitive cycles, that result from the arrival of new GPTs. The main finding of the approach is a view of the growth process in which the notion of increasing returns underlying new growth theory can be explained by the fostering complementary advances induced by new GPTs. Philippe Aghion and Peter Howitt (chapter 5) argue that the Helpman- Trajtenberg-model is incomplete and introduce social learning into the model. This variable is included to analyse and explain the fact that each sector must develop a specific intermediate good before anyone in that sector can make components for the GPT. In this manner they can also explain why the process of the arrival and introduction of a new GPT is a smooth one instead of leasing to a, as in Helpman and Trajtenberg, dramatic fall (at first) in production. Howitt (chapter 9) extends this argument by investigating the resulting capital obsolescence. Richard Harris (chapter 6) and Nathan Rosenberg (chapter 7) apply the theoretical framework of GPTs to the Internet and chemical engineering, respectively. Harris finds that, due to the introduction of the Internet, enhancing communication, productivity levels of small countries equal those of large countries. In addition, he observes that globalization is expressed in increased volumes of trade in services. Finally, when the Internet is defined as a GPT, the introduction of communication networks like the Internet enhances virtual mobility of mostly skilled labour resulting in a wage premium to skilled labour. Kevin Murphy, Craig Riddell and Paul Romer (chapter 11) investigate this result empirically for Canada and the US and conclude that new GPTs are relative complements with more educated labour, which is closely related to the thesis that machinery and new technologies harm low-skilled workers. Rosenberg suggests that the notion of a GPT has to be broadened to include intellectual methodologies, such as in chemical engineering, which may bring to the forefront valuable new insights into the underlying determinants of technological change and the diffusion of GPTs. In chapter 8 Lipsey, Bekar and Carlaw pick up their framework laid out in chapter 2 to focus on the consequences of changes in GPTs by particularly stressing the debate between the Helpman-Trajtenberg and Aghion-Howitt- model. By building a structuralist model, including alongside the neo-classical components technology and policy variables, they argue that it is the structure of technology systems which should be focussed on. According to these authors structural issues are the core of an understanding of growth as driven by technological change. Timothy Bresnahan and Alfonso Gambardella (chapter 10) examine the division of inventive labour and the extent of the market. They endogenize the arrival of GPTs, which was assumed to be exogenous in the models of Helpman and Trajtenberg and Aghion and Howitt. They find a self-enforcing loop of inventions induced by increasing specialization of knowledge and diverse markets inwhich new GPTs continue to contribute to growth, and most importantly that growth continues to permit their invention. The general tone in Helpman's book is that the concept, theoretical nature, and empirical application of GPTs is an important contribution in the explanation of economic growth. By both providing theoretical models and empirical results a self-enforcing process is observed in the book. Therefore, the book is constructed is such a way that it makes a strong and comprehensive statement to the importance of GPTs.