INNOVATION AND ECONOMIC GROWTH by Nathan Rosenberg Professor of Economics (Emeritus), Stanford University

Abstract This paper illustrates why technological innovation is considered as a major force in economic growth and focuses on some of the most distinctive features of innovation in the highly industrialized economies of the OECD area. In particular, the paper attempts to examine a primary single feature, “uncertainty” that dominates the search for new technologies by drawing several cases on the American experience. It also touches on the impact of technological innovation in the tourism industry and how it is transforming the tourism business model. Technological innovation, a major force in economic growth It is taken as axiomatic that innovative activity has been the single, most important component of long-term economic growth and this paper will start by drawing upon the findings of a very influential paper published by my colleague at Stanford, Prof. Abramovitx, back in the mid-1950s. In the most fundamental sense, there are only two ways of increasing the output of the economy: (1) you can increase the number of inputs that go into the productive process, or (2) if you are clever, you can think of new ways in which you can get more output from the same number of inputs. And, if you are an economist you are bound to be curious to know which of these two ways has been more important - and how much more important. Essentially what Abramovitz did was to measure the growth in the output of the American economy between 1870 and 1950. Then he measured the growth in inputs (of capital and labor) over the same time period. He then made what were thought to be reasonable assumptions about how much a growth in a unit of labour and how much a growth in a unit of capital should add to the output of the economy. It turned out that the measured growth of inputs (i.e.,