Technical or Technological Change
Refers to the process by which both products and the processes of production are developed and improved, as a result of increased scientific knowledge and the application of that knowledge to production.
• A technical breakthrough may make a new product development possible. Mobile phones are a relatively recent new product. This is product innovation.
• Equally, technical change leads to new and cheaper methods of producing and this leads to costs falling and sometimes also falls in relative prices. Telephone calls have recently become cheaper because of improved equipment. This is process innovation.
Technical change provides a substantial impetus to the process of economic growth because it makes it possible to increase productivity , e.g. to reduce the quantity of real resources needed to produce a particular item. The gains from technical change are most obvious in manufacturing, but there have also been major increases in productivity in the primary sector and in the service sector , for example as a result of using computer systems.