The Diffusion of Technology

Abstract

The diffusion of technology can be defined as the process by which the use of an innovation spreads and grows. Diffusion is very important in the process of technological change. On the one hand, diffusion narrows the technological gap that exists between the economic units of an industry, and thus the rate of diffusion determines to a large extent the rate of technological change measured as the effect of an innovation on the productivity increase in an industry. On the other hand, diffusion plays an important part in the competitive process in the sense that diffusion erodes the competitive edge maintained by the originator of successful innovations.¹ Indeed, Schumpeter (1934) visualises technological change as occurring in three steps: invention, innovation, and diffusion. Diffusion is the last step and the most important step from the viewpoint of the economic impact of a new product or process. It is the stage at which a new product or process comes into widespread use. Figure 4.1 which is adapted from Gruber and Marquis (1969) indicates the importance of diffusion in the process of technological change.