Dynamic and endogenous change of input–output structure with specific layers of technology

Abstract

There are obvious gaps between long-term change in economic structure and its principal driving force—technological progress. History has shown the influence of technological progress on the economy and current insights in technological development can almost predict the technological waves of the next 50 years, but their potential impact on the economy has not yet been assessed. In this paper, we aim to simulate the evolution of economic structure as represented by input–output structure under specific technological change. A new version of a dynamic input–output model is developed in which both technological progress and deployment are endogenous. Investment in R&D drives the development of new technologies, installation of capital stock brings new technical processes into sector production, new and old technical processes within a sector exchange their relative weights in production as they are phased in or out, and sectors evolve or transform over time. Scenario analysis using this model applied to the Chinese electric power industry shows that the phasing-in of non-fossil energy technology will greatly change the structure of both the sector and the economy over the next 100 years.