Technological change is the development, improvement, and adoption of knowledge, tools, and methods that alter how goods and services are produced or used. In economics, it helps explain changes in productivity, production costs, product quality, and the range of available goods. It encompasses both advances that expand technological possibilities and the spread of existing techniques among firms and countries. Its economic consequences depend not only on technical capabilities but also on investment, skills, institutions, and implementation. (oecd.org)
Invention, innovation, and diffusion
Three related concepts distinguish different aspects of technological change. Invention produces a new idea, device, or technique. Innovation involves implementation: a product becomes available to users, or a process is brought into use. Diffusion of innovations describes the spread of knowledge and the adoption of innovations by additional users. These processes interact rather than necessarily forming a fixed sequence from scientific discovery to commercial application. Practical experience can generate new problems, improvements, and research questions. (oecd.org)
The Oslo Manual, published by the OECD and Eurostat, distinguishes product innovations from business-process innovations. Product changes concern goods or services; process changes concern activities such as production, logistics, and administration. An innovation may be new to an adopting firm without being new to the world. Technological change and innovation nevertheless are not identical: innovation also includes organizational or commercial changes that need not involve a technological advance. (oecd.org)
Forms and historical patterns
Technological change includes incremental improvements as well as major breakthroughs. Some advances affect a narrow application; others have uses across many industries. Economists call the latter general-purpose technologies when they combine widespread applicability, continuing improvement, and opportunities for complementary innovation. Frequently studied examples include the steam engine, electricity, and the computer. Their economic importance arises partly from the additional inventions and organizational changes they enable, rather than from the original technology alone. (nber.org)
Large technological transitions can require prolonged adjustment. Existing equipment may need replacement, workers must acquire skills, and firms may reorganize production. Research on general-purpose technologies therefore distinguishes the arrival of a technology from the later realization of its productivity benefits. A technology's availability does not imply that adoption is immediately profitable for every potential user, or that its effects appear simultaneously throughout the economy. (nber.org)
Explanations in growth theory
In the Solow–Swan model, technological progress is generally treated as exogenous: its evolution is specified outside the model rather than explained through economic decisions. Under standard assumptions, accumulating capital alone cannot sustain indefinitely rising output per worker because of diminishing returns. Continuing technological progress allows production to increase beyond what capital accumulation by itself would support. This framework separates the contribution of additional inputs from improvements in their productive effectiveness. (nobelprize.org)
Endogenous growth theory instead explains technological development through incentives and resource allocation within the economy. Paul Romer's model links advances to deliberate investment in research and development. Technological knowledge has characteristics of a nonrival good: its use by one producer does not necessarily prevent others from using it. Partial exclusion can permit innovators to earn returns, while wider access generates knowledge spillovers. The distinction between private rewards and broader benefits is central to these models. (nber.org)
Adoption and institutional conditions
Adoption depends on more than access to equipment. Firms need relevant human capital, financing, complementary assets, and the ability to integrate outside knowledge. Suppliers, customers, universities, and competitors contribute to information exchange. Trade and international business connections can facilitate access to techniques developed elsewhere, but differences in capabilities and operating conditions influence whether those techniques can be used effectively. (oecd.org)
Patents and other forms of intellectual property influence the conditions under which knowledge is shared or licensed. Infrastructure, standards, and the regulatory environment also shape innovation and adoption. Compatibility can be particularly important where network effects make a technology more useful as participation increases. These relationships help explain why technological trajectories depend on previous investments and interactions, rather than solely on the technical merits of competing designs. (oecd.org)
Employment and distribution
Technological change alters the tasks performed in the labor market. Automation transfers some tasks from workers to machines, potentially reducing demand for labor in those activities. Other innovations create tasks in which workers have a comparative advantage. Task-based models distinguish these displacement and task-creation effects from productivity gains, which can lower costs and expand production. The balance among them influences employment, wages, and labor's share of income. (nber.org)
Consequently, replacing workers in a particular activity does not establish that aggregate employment must fall. Increased output, changes in demand, and effects transmitted through other industries can offset displacement. Aggregate outcomes and local outcomes may differ: workers, occupations, and industries need not experience the same adjustments. Empirical research therefore examines both direct substitution and economy-wide responses rather than inferring employment effects from technical capability alone. (nber.org)
Measurement
Growth accounting separates output growth associated with measured inputs from a residual commonly described as total factor productivity growth. This residual is informative but is not a direct measure of technological change. It can also reflect efficiency improvements, resource reallocation, economies of scale, and changes in management or workforce skills that the input measures do not fully capture. (bls.gov)
Researchers supplement productivity statistics with research expenditure, patent records, innovation surveys, and adoption indicators. Each captures a different dimension: research spending measures effort, patents document certain inventions, and surveys can identify implemented products or processes. The Oslo Manual provides common definitions to improve comparability, while emphasizing that innovation measurement extends beyond research expenditure and patent counts. (oecd.org)