Technical Progress, The Production Function, and Development

Abstract

The neo-classical theory of price, production, and output did not lead to the development of a theory of innovations. Apart from Schumpeter’s work, inventions and innovations have been matters left outside of economic theory. In recent years there have been some attempts to develop investment functions that incorporate ‘technical progress’, but for the most part, these have not been widely accepted. The situation is still very much up in the air. But, if we are to have a take-off type theory of development this implies that at some point the induced rate of investment must be accelerated and that this higher rate of investment must sustain itself. But why should the rate of investment at a somewhat higher level of per capita income be higher than at a lower level ? Temporary exogenous events could explain occasional high investment rates, but this would be just as true for backward as for less backward and growing economies.