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TERRA ECONOMICUS

TECHNOLOGICAL ECONOMIES OF SCALE AND ECONOMIC GROWTH

TERRA ECONOMICUS, , Vol. 18 (no. 1),

The article focuses on a simple model of economic growth: a modification of the fixed capital accumulation equation. Besides, we introduce the traditional assumption that labor productivity is a power-based production function of capital strength. The model has shown that the growth of capital intensity, which identifies technological progress, does not automatically lead to the stimulation of economic growth. For such incentives, a rather strict condition must be met, which is that the power parameter θ in the production function must be greater than one; otherwise, technological progress, paradoxically, constrains economic growth. The presence of the condition θ > 1 is called the technological effect of scale since in this case, and there is a wide replication of new technologies, which leads to an accelerated increase in labor productivity. An econometric check of the presence of this condition for several countries showed that it was not obvious. As it turned out, only Russia, Canada, the United States, and France had a technological scale effect; the other sample countries – Japan, Italy, Australia, and the United Kingdom – had the opposite condition: θ < 1. To explain the scale effect, the authors put forward the hypothesis that there are two drivers of development – industrial and territorial. An industry driver is a cluster of high-tech industries (such as aircraft manufacturing and nuclear power) that are generated by enterprises with high productivity. The territorial driver assumes a vast territory of the country, which allows replicating the products of the industry driver widely. The idea is put forward that Russia has a significant economic advantage due to its technological economies of scale, which creates objective conditions for the effective implementation of high technologies.
Citation: Balatsky, E. V., Yurevich, M. A. (2020). Technological economies of scale and economic growth. Terra Economicus, 18(1), 43–57. DOI: 10.18522/2073-6606-2020-18-1-43-57


Keywords: economic growth; capital intensity; technological economies of scale; technological progress

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Publisher: Southern Federal University
Founder: Southern Federal University
ISSN: 2073-6606