Abstract for: System Dynamics Model of Technology and Economic Growth: A Preliminary Study

The models of technological change and economic growth those have been developed so far do not provide satisfying directions for policy purposes. In this study, a simple system dynamics model based on an integration of micro- and macroeconomic theories is constructed to explore the process of technological change affecting the economic growth. It is hoped that by understanding the process, the developing country may have some directions more clearly how to design its technology policies. The capital-labor ratio change is used to represent the technology change and the mathematical equations of the model are derived from the underlying economic concepts. The main point of deriving the equations is that the production function has a capital intensity which is not constant. The study resulted in an important finding that the capital intensity is affected by the average life of capital in a negative direction. The study shows that the increase in capital intensity is an important source of the economic growth. This increase will strengthen the accelerator mechanism of the economy and creates larger multiplier effects. The increase in capital intensity can be obtained through managing innovation processes base on the development of education and the R&D capacity of the nation. Keywords: Capital-labor ratio, Capital intensity, Innovation, System dynamics