Technology shock

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. Find sources: "Technology shock" – news · newspapers · books · scholar · JSTOR (August 2014) (Learn how and when to remove this message)

Technology shocks are sudden changes in technology that significantly affect economic, social, political or other outcomes.^[1] In economics, the term technology shock usually refers to events in a macroeconomic model, that change the production function. Usually this is modeled with an aggregate production function that has a scaling factor.

Normally reference is made to positive (i.e., productivity enhancing) technological changes, though technology shocks can also be contractionary.^[2] The term “shock” connotes the fact that technological progress is not always gradual – there can be large-scale discontinuous changes that significantly alter production methods and outputs in an industry, or in the economy as a whole. Such a technology shock can occur in many different ways.^[3] For example, it may be the result of advances in science that enable new trajectories of innovation, or may result when an existing technological alternative improves to a point that it overtakes the dominant design, or is transplanted to a new domain. It can also occur as the result of a shock in another system, such as when a change in input prices dramatically changes the price/performance relationship for a technology,^[4] or when a change in the regulatory environment significantly alters the technologies permitted (or demanded) in the market. Numerous studies have shown that technology shocks can have a significant effect on investment, economic growth, labor productivity, collaboration patterns, and innovation.^[5]