Technological Progress

Last Updated :

21 Aug, 2024

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What Is Technological Progress?

Technological progress is when innovations lead to technical developments, which results in growth in production within an economy. This progress leads to increased efficiency in the production process, enhances labor productivity, and impacts other factors of production, which causes overall economic growth.

Organizations use technology to convert their inputs into outputs. Systematic research and development results in the advancement of technology. Organizations use these advanced technological methods to increase production cost-efficiently, increasing their revenue and profit margin. Furthermore, this progress allows users to conduct business and operate their finances with more convenience and accessibility.

What Is Technological Progress?

Technological progress is technology development that leads to increased economic productivity resulting in economic growth.
The advancement in technology aids organizations in improving the efficiency of their production process in a cost-efficient manner. The innovations offer customers more convenient, accessible, and seamless services.
This progress enhances labor productivity and improves other factors of production. Furthermore, it helps to develop sustainable and environmentally environment-friendly business practices. However, it also has negative consequences, which include job displacement and employee dissatisfaction.

Technological Progress Explained

Technological progress is the advancement in technology that leads to an increase in the production of an economy. Organizations use technology to convert their inputs into outputs. They invest in research and development, which leads to innovations that can be used to enhance production. It also enables organizations to offer their customers newer and more convenient services. This progress is instrumental in increasing labor productivity and causing the development of other factors of production.

The advantages of technological progress are as follows:

This progress can enhance efficiency, leading to growth in productivity. As a result, there will be economic growth which would positively impact people's living standards.
Innovations can lead to the creation of new products, services, and industries. Thus, there will be an increase in employment and entrepreneurial opportunities.
Technological development enhances global connectivity, which opens the door for international trade. This leads to easy accessibility to international markets and enhances global economic integration.
Advancements in technology can lead to the development of sustainable methods for growth. It is one of the most crucial advantages of technological progress as it helps optimum resource utilization and employs environment-friendly production practices.

How To Measure?

The Solow Residual method is one of the most common methods for measuring technological progress. In this method, the user assumes that all the changes in production cannot result from a shift in capital inputs and labor growth. This method helps to calculate the rise in efficiency and productivity from technological progress using simple linear regression. Various other methods for measuring technological progress include productivity and efficiency metrics, estimating digital transformation index, and collecting feedback from customers and users.

Factors

These progress factors are as follows:

The rise in consumer demand and expectations in the business acts as a driving force for this progress. Since customers seek more efficient, convenient, and secure services, organizations try to develop and implement new technologies to meet the customers' rising demands.
The regulatory framework in a country plays a significant role in this progress. The government and the authoritative bodies may introduce new rules, regulations, and standard practices, which could enhance the technology.
The competitions in the market are a contributing factor to this progress. As several organizations compete against each other to gain market dominance, they look for new methods to improve innovations that could increase efficiency.
Aiming at cost efficiency may lead to innovations. Organizations are constantly seeking newer ways to provide the same services at a reduced cost. As a result, it may lead to an increase in this progress in the economy.
An increase in globalization and the rise in transaction processes across borders requires technological advancement. Customers want an efficient and seamless experience while transacting across broad boundaries. As a result, it led to this progress to meet up with the customer demands.

Types

The types of technological progress are as follows:

#1 - Digital Payments

This progress type comprises the development of digital payment mechanisms that include contactless payments, cryptocurrencies, mobile wallets, and peer-to-peer transfers. These developments offer fast, convenient, and efficient money transfer methods across boundaries.

#2 - Online Banking And Mobile Applications

Online banking networks and mobile applications have impacted business processes by a significant amount. It enables its users to manage their bank accounts, check balances, pay bills, transfer money, and engage in other banking activities from remote places. Furthermore, it enhanced accessibility and convenience.

#3 - Data Analytics

One of the crucial types of technological progress is the increase in advanced data analytics. Financial institutions use data analytics to gain insights from vast amounts of data. They use this data to identify trends, determine patterns and make financial decisions backed by the data they gather. This progress helps firms to collect, store and process data on a large scale.

#4 - Blockchain Technology

The rise in blockchain technology and, in turn, cryptocurrencies have impacted the economy by a considerable amount. Blockchain technology is decentralized, which makes it easily accessible. Furthermore, it offers security and transparency, which removes intermediaries, reduces the settlement time, and increases a transaction's traceability.

Examples

Let us understand the concept with the following examples:

Example #1

Suppose Samantha wanted to purchase a cosmetics product that was unavailable in her neighborhood. So, she searched for the product online and scored a good discount on it. However, the website does not offer cash on delivery option for payment. As a result, Samantha linked her mobile wallet account to the website and made her purchase by transferring the amount through the mobile wallet. The transaction gets completed successfully, and the website receives the payment and starts processing the delivery. This is a technological progress example.

Example #2

Technological advancement in recent years has dramatically impacted international trade and finance. These developments have increased cross-border transactions and decreased transaction costs. Furthermore, they have enhanced the speed and efficiency of financial transactions. For example, the advent of e-commerce has revolutionized the financial sector. It made conducting business across boundaries more accessible. Additionally, the emergence of fintech companies has led to providing new financial services and products to customers and businesses worldwide. This is a technological progress example.

Risks

The risks from this progress are as follows:

#1 - Threats In Cybersecurity

When financial institutions start relying on technology, they are often left vulnerable to cyberattacks, which may breach their safety and security. Several malicious attacks may compromise the institution's cyber systems, steal valuable data, impede operations, and even participate in fraud.

#2 - Failures In The System

Technical failures in the system may hinder an organization's operations, leading to potential losses. For example, software bugs, connectivity problems, faulty hardware, and system outages may impact critical business processes and result in significant damage.

#3 - Skills And Employees' Challenges

This progress may require the employees to learn new skills. The fast-paced growth in technology may need employees to upskill themselves constantly. This could lead to increase investment in training and development. Moreover, it could result in dissatisfaction in the workforce.

Frequently Asked Questions (FAQs)

1. How does technological progress affect economic growth?

This progress affects economic growth significantly as it impacts several aspects of the economy because it is instrumental in increasing productivity. Additionally, the innovations lead to employment generation and enhance the efficiency of the production process. Furthermore, it causes a rise in international trade and globalization, eventually resulting in economic growth.

2. Is technological progress always positive?

Such progress may not always be positive. Although it has several advantages, such as increased innovation and production efficiency, it can also result in security and privacy concerns, job displacement, and social disruptions. Its consequences depend on how it is managed and its economic and societal impacts. Factoring in the potential threats from this progress is essential to maximize its benefits and minimize the risks resulting from it.

3. How do monopolies influence innovation and technological progress?

Monopolies can influence this progress in a positive as well as negative manner. They may invest significantly in research and development to maintain their dominant position in the market. The increase in innovation and improved efficiency may augment economic growth. However, monopolies can obstruct any competition from entering the market and hinder innovations.