Technical progress involves rise of labor productivity, methods of saving of raw materials and energy, allows to achieve higher gain by those who first change their production technology.
Technical progress moves supply curve to the right, since producers are ready to produce under these conditions more than before at any level of price.
It also causes or forces a lot of other great changes in the structure of the cost of production, employment structure, in the competences and in the organization of production.
All of these changes result in an increase in the production of individual companies, industries, sectors, and thus the national economy as a whole. Technical progress gives best results in terms of the free market mechanism. The state should interfere only if the growth rate of technical change in some area is so small that it threatens the development of the economy. Interference should relate to the preparation and implementation of inventions which revolutionize the technological processes, for example use of nuclear energy, the development of biotechnology and advanced laser technology.
Technical progress of internal origin
It is associated with involvement in the production process of new capital resources in order to increase productivity. Economists distinguish technical progress based on capital and labor.
Technical progress of external origin
It is based on machines that are newly installed, as opposed to the machines already operating. Is the result of an increase in the number of investment capital per employee (capital intensity). Production volume per employee increases, if investment will increase resource efficiency.
Induced technical progress
Is a special case of the technical progress of internal origin.
Capital productivity in the initial period of commissioning new machinery and production equipment is less than the potential because employees lack experience in the use of new technologies. In this case, productivity of new capital increases for two reasons. The first is the greater productivity of the new capital, which is revealed in operation of new machinery and equipment. The second is the impact of the acquired experience in the use of new capital.
- Färe, R., Grosskopf, S., Norris, M., & Zhang, Z. (1994). Productivity growth, technical progress, and efficiency change in industrialized countries. The American economic review, 66-83.