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Saturday, December 21, 2013

Technological and Labor Skill Advancement Increases Economic Output



Economic systems have both inputs and outputs. When outputs exceed the total inputs, the system is seen as unsustainable. A paper by Brestschger and Valente (2011) delves into a method of measuring the sustainability of resource rich countries. Even though their focus is on oil producing countries, they do have some broader implications. 

Most studies seem to rule out the concept of technological progress and trade gains to determine economic viability. Technology has the ability to lower the cost of transactions and increase overall outputs. Thus, technological advancement can lead directly to an export market and more sustainable system. 

Net investment is a concept that focuses on the net increases in all the productive assets of the local economy. Such net investment are measured by adding all of the technology and labor productivity increases and subtracting things like depletion of natural resources. The more information available the more accurate such evaluations become. 

The model proposed by the authors includes an expression of net investment from:

1. International trade in different types of inputs
2. productivity growth in final sections
3. cost-reducing technology in resource extraction

A large percentage of resource-exporting countries are unsustainable because of negative net investments. This means they are losing resources and not hedging the influx of capital to ensure that sustainable growth beyond these resources occurs. According to net investment, the economic capital flow is moving outward.  

If w were to apply the findings of this study to other areas using a similar schema we would conclude that economies that can raise their value of products and export them on the market have net inward flows of value. The wealth of an area increases while those countries that export resources without raising the values significantly are less sustainable.  Technology and local labor skill have the ability to convert lower value products to higher value outputs that increase local wealth. When considering global economies hubs can use local technology and skills to purchase lower value inputs from other places in the world and develop them into higher value products that are sold on the market to increase the wealth of an area. 

Bretschger, L. & Valente, S. (2011). International trade and net investment: theory and evidence. International Economics and Economic Policy, 8 (2).

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