# The effect of broadband spread on growth in GDP

#### Written by S. Kindbom

#### Paper category

### Master Thesis

#### Subject

### Economics

#### Year

### 2012

#### Abstract

Thesis: The Solow Growth Model To describe the problem at hand, one of the earliest theories explaining economic growth related to technological change would be an appropriate start. The Solow growth model is described by separating the growth of important parts of output (Y), capital (K), labor (L), and technological progress (A), or the growth of certain parts that are also called Solow surplus. Contribution to economic growth. Learn. When Solow used this function on data from 1909 to 1949 in 1957, he found that, except during the Great Depression, technological changes were generally constant. According to Solow’s findings, technological change has nothing to do with economic growth. The criticism of Solow would be not to define A more narrowly or use another variable alone to represent technological progress, because in his equation, Adoes not only represents technological progress, but also includes knowledge and other factors that may have an impact on production. , Called the Solow residual. Therefore, the equations of this growth model only show a preliminary idea of the relationship between output growth and capital, labor, and technological progress, as well as the disturbances surrounding it. For the purposes of this article, only the initial relationship is relevant to the theoretical basis. From the contribution of the Solow model to this article, we can find the correlation between initial output growth and technological interference as well as capital and labor. Therefore, as a reminder of empirical analysis, the model should include capital and unemployment as control variables. This control can be clearly seen from the previous equations, where an attempt must be made to prevent the importance of technology in the model from being affected by capital or unemployment, because these may have important implications for explaining changes in output. Romer developed the so-called new growth theory from the Solow growth model in 2006, which expanded the more general growth theory to incorporate research and development and human capital into the model. 2.2 The characterization of technology For the emergence of any new technology, the existence of the technology and its spread in society have certain factors. It may be the education of ordinary people discussed later, or it may be the technological creation itself explained by the new growth theory. According to the basic view of Romer's new growth theory, the total production of a country is divided into two main sectors, the first is the production of goods and general services, and the second is the production of knowledge. This produces a complement to the Solow growth model introduced in the previous section in the form of aK and aL, which represents the proportion of capital invested and labor invested in R&D. In equation (6), we can see how this mathematical formula is expressed.
2.3 The importance of education in the application of technology Based on the Solow growth model, human capital theory supplements the model by introducing human capital into the production function, as shown in Equation 8. The production function and the Solow growth model have similar characteristics and capital in terms of output, but increase the extension of human capital H(t). Therefore, the production function is as follows, and output will be a function of capital, human capital, and technology. And human capital H(t) “is the total amount of productive services provided by workers” (Romer, 2006, p 134). The human capital H at point t is expressed as the labor force L at time t, multiplied by the number of years of education G(E) for each worker as shown in formula (9). In theory, it should also capture experience as a learning-by-doing function, but since this is almost impossible to show in the global data set, it will be excluded. One hypothesis that will be removed from this theory is that "every worker gets the same amount of education, E." This is because the more education a worker receives, the better the skills and the higher the human capital. In addition, the elementary school will give individuals basic skills such as reading, writing, math. And secondary education and higher education will improve these skills and form new skill sets. The labor force grows at nL(t) = ̇(t), in this case, technology grows at gA(t) = ̇(t), sY(t)= ̇(), and is regarded as exogenous growth Variables, and H(t), are regarded as endogenous variables. (Romer, 2006, p.133-135) Human capital theory shows that in a closed economy, the total stock of human capital is important to the growth rate of output and technology (Romer, 1989, p. 29). One reason is that the generation of scientists and related occupations depends on the level of human capital introduced and formed in the economy. The higher the level of human capital, the more likely it is to become an advanced technology. This may confirm the argument about the distribution of technologies that technologically advanced regions or countries may be more inclined to use advanced technologies close to the time of invention than backward countries. Therefore, two patterns can be seen from this observation. 1) Countries with higher levels of technology and education will see a positive cycle, while less developed countries will see a vicious cycle of technological progress because they will It is less encouraged to invest in it. 2) According to this theory, the income and possible growth gap between rich and poor countries will become larger and larger, which may lead to increased poverty and reduced welfare on a global scale. Due to the low growth of human capital, the motivation to acquire skills is weakened. Read Less