Economic growth and economic development 553

Introduction to Modern Economic Growth
models, process innovations reducing costs of production and quality improvements
have identical effects.
Another important distinction in the technological change literature is between
“macro” and “micro” innovations (see Mokyr, 1990). The first refers to radical
innovations, perhaps the introduction of general-purpose technologies, such as electricity or the computer, which potentially changed the organization of production
in many different product lines. In contrast, micro innovations refer to the more
common innovations that introduce newer models of existing products, improve the
quality of a certain product line, or simply reduce costs. Most of the innovations we
will be discussing can be viewed as “micro innovations”. Moreover, empirically, it
appears that micro innovations are responsible for most of the productivity growth
in practice (see the evidence and discussion in Freeman (1982), Myers and Marquis (1969) and Abernathy (1980)). We will discuss the implications of macro or
general-purpose innovations below.
12.1.2. A Production Function for Technology. A potentially confusing
issue in the study of technological progress is how to conceptualize the menu of
technologies available to firms or individuals. Since our purpose is to develop models of endogenous technology, firms and/or individuals must have a choice over
different types of technologies, with greater effort, research spending and investment leading to better technologies. At some level, this implies that there must
exist a meta production function (a production function over production functions),
which determines how new technologies are generated as a function of inputs. We
will sometimes refer to the meta production function as the innovation possibilities
frontier or as the R&D production function.
While a meta production function may appear natural to some, there are various
economists and social scientists who do not find this a compelling approach. Their
argument against the production function approach to technology is that, by its
nature, innovation includes the discovery of the “unknown”; thus how could we put
that in the context of a production function where inputs go in and outputs come
out in a deterministic fashion?
539