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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 36, No. 3, pp.269-303
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2023
Received 09 Aug 2023 Accepted 14 Aug 2023
DOI: https://doi.org/10.22904/sje.2023.36.3.002

Why Is It Difficult to Adopt Innovative Technologies? The Role of Coordination and Collateral Borrowing in Technology Adoption

Yong Jin Kim ; Chul-In Lee
Yong Jin Kim, Professor Emeritus, Division of Economics, College of Social Science, Ajou University, South Korea, Fax: +82-031-219-1618 yongkim@ajou.ac.kr
Chul-In Lee, Corresponding author, Professor, Department of Economics, Seoul National University, South Korea, Tel: +82-2-880-6345, Fax: +82-2-886-4231 leeci@snu.ac.kr

JEL Classification: E32; O14; O30

Abstract

Adopting highly innovative technologies is difficult due to many socioeconomic factors. We analyze the economic mechanisms associated with the large fixed costs jointly faced by various subsectors of an economy and the financing difficulty. We construct a Romer (1990) type growth model of technology adoption with fixed cost and then analyze macro dynamics showing why adopting innovative technology is difficult. We show that exercising coordination power in centralized economies can boost aggregate demand, facilitating the adoption of new technologies. Similarly, collateral lending in decentralized economies can play the role of helping technology adoption. Only when a threshold level of investment (i.e., the tipping point) is funded will the increasing returns to scale property arising from fixed costs generate a dynamic path toward a stable equilibrium with high output. We draw some implications.

Keywords:

technological changes, coordination, big push, collateral lending

Acknowledgments

The authors thank fiscal network participants for their useful comments. Lee gratefully acknowledges the research support of Michigan State University as a visiting scholar.

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