The Role of Finance in Technological Change

Abstract

Theoretical analysis of technological change has traditionally focused on explanations of the interactions between production techniques, prices and quantities, and on interindustrial variations in capital intensity and market structure (see Gomulka, 1990). Less attention has been paid by economists to explaining the uneven patterns of technological change that characterise different industries, and to the feedback process set in motion by the interaction between technological and financial innovation. The dynamics of technological change, however, gained in interest during the mid-to-late 1970s and the 1980s, when technology drove a restructuring process that involved most industrial sectors in all the advanced countries. The mutual dependence of finance and technology is still given scant consideration by economic research, and there is therefore a need for more thorough analysis of the way in which financial resources are channelled towards innovative investments at the level of both the firm and the economy.¹