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Sunday, January 01, 2006

Technology, Productivity, Offshoring & Economy's Progress

The traditional view is that "productivity" - measured by output per hour for the nonfarm business sector - is the best single measure of what leads to differences in economic performance over time. Arnold Kling reports that the average productivity growth from 2000-2005 is 50 percent higher than it was from 1995-2000, and about twice as high as during the previous ten years. He emphasises that the average productivity growth rate in the last five years is the highest over the past half century. Productivity has a huge amount to do with the tools employees have to perform their work. Thus, technological breakthroughs can increase productivity, as can a better educated workforce. To the extent that government policy promotes technological breakthroughs or education, it does so only over time. In an article titled, rationally exuberant, he highlights that in fifteen years, computers have become a much bigger deal in the economy as a whole. Information technology investment relative to GDP grew from less than 2 percent in 1987 to 6 percent today. In fifteen years of progress between 1985 & 2000, the standard microprocessor went from the 386 with 275,000 transistors to the Pentium 4 with 42,000,000 transistors. Economist William Nordhaus even says that Moore's Law may understate the progress of computing.His measures suggest that since 1980 the cost of computing has fallen at an average rate of 80 percent per year. The implication is that as long as we do not become completely unable to figure out new uses for better computing technology, the power of that technology will be felt in future productivity growth. There’s also the expectation that Nanotechnology and/or biotechnology could become even more important sources of growth than Moore's Law.I also look forward to more research and findings on how offshoring is positively contributing to this productivity growth - given that all major enterprises are actively embracing it - this draft OECD paper assessing offshoring & productivity finds positive correation between these two - atleast in the service sectors. Technology’s contribution is not just the progress that we see in the conventional sense –it is contributing highly positively to the economy & the expectation is that it should continue to do so in future.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
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