In recent times, economists have begun to single out technical progress or more generally, knowledge creation, as the key factor for economic growth. The significance of technically progress was acknowledged in the neoclassical growth models even though the determinants of the level of technology were not critically examined. However, it was obvious that the convergence in per capita income levels was not possible without the convergence of technologies.
Modern growth theory is largely established based on models with constant or increasing return to reproducible factors in consequence of the accumulation of knowledge. Knowledge is a public good by degrees, and R&D, education, training and other investments in knowledge creation may result in externalities that hinders decreasing returns to scale for labour and physical capital. Taking these externalities into consideration, an economy with a constant development of the knowledge base may lead to positive longrun growth instead of the neoclassical steady state where per capita incomes stay uninterrupted. This insight is one reason why the most successful modern economies are often referred to as knowledge economies.
Depending on the economy’s starting point, technical progress and growth can be based on conception of notably new knowledge, adaptation and transfer of existing foreign technology or a combination of both.
In addition to an effective educational and research system, a business landscape that drives growth and entrepreneurship is needed to thrive in the knowledge economy. Factors such as competition, openness to international trade and foreign direct investment, well functioning factor markets, secure property rights and relevant benefits are needed to translate knowledge and skills into growth and competitiveness. Most countries are having difficulties establishing such an economic environment to drive growth, innovation and technical progress and to intrigue FDI. However, only some countries have succeeded in this enterprise.
This paper will address the economic policies and technological change in three countries, Finland, Singapore and Sweden, which have been relatively successful in executing policy reforms over the last decades.
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