An impact of the variable technological progress rate on the trajectory of labor productivity

Abstract

The goal of this paper is to develop the neo-classical Solow growth model, in which, the authors repeal an assumption of a constant rate of growth of technological progress. Herein, the authors assume an alternative trajectory of an increase in scientific and technical knowledge A(t), and on that basis, they accept the following assumptions. First, the rate of growth of technological progress is not constant, but changes over time. Second, the path of the growth of the scientific and technological knowledge tends toward a certain level in the long term, which can be equated with the equivalent of the technological boundary. Such a modification of the assumptions regarding the technological progress rates, allows leading growth paths for both capital and product per unit of effective labor. Next, based on the solution of the presented growth model, the authors calibrated the parameters and carried out numerical simulations. Numerical simulations, conducted for the Polish economy in a 100-year horizon, allowed an inclusion of scenarios regarding both the rate of technological progress and investment rates. In the simulations, two variants of the annualized rates of technological progress were adopted (optimistic, g=1.7% and realistic, g=1.5%). The adopted levels of technological progress rates were used to determine the horizontal asymptote for the scientific and technological knowledge A(t) that will be shaped in accordance with geometric progress. In the considered variants the following investment rates were adopted: 15, 20 and 25%. This allowed determining the trajectories of labor productivity growth in the Polish economy taking into account different combinations of changes in the rates of technological progress and investment rates.