A Dynamic Model of the Choice of Technology in Economic Development

• Published in: Frontiers of economics in China Vol. 11; no. 3; pp. 498 - 518
• Main Authors: Zhou, Haiwen, Zhou, Ruhai
• Format: Journal Article
• Language: English
• Published: Beijing Higher Education Press 01.09.2016; Higher Education Press Limited Company
• Subjects: Analysis; Capital stock; China; choice of technology; Economic aspects; Economic development; Economic models; increasing returns; Innovations; Manufacturing; Manufacturing industries; overlapping-generations model; Studies; Technology adoption; Unemployment; China; India
• ISSN: 1673-3444; 1673-3568
• DOI: 10.3868/s060-005-016-0026-4

In this overlapping-generations model, there is unemployment in the manufacturing sector. Manufacturing firms engage in oligopolistic competition and choose technologies to maximize profits. With capital as a fixed cost of production, increasing returns in the manufacturing sector exist. In the unique steady state, first, when individuals become more patient, the savings rate increases while the level of an individual’s income decreases. Second, an increase in population or percentage of income spent on manufactured goods does not change steady-state technology while the level of an individual’s income decreases. Third, an increase in the wage rate leads manufacturing firms to choose more advanced technologies and the steady-state capital stock increases. Finally, an increase in the level of subsidies to technology adoption does not change steady-state technology.