Sustainable economic development illustrated through a blend of cityscape and natural landscapes, emphasizing technological innovation.

Decoding Economic Growth: How Technology Drives Development

Rhea Morgan in Business & Economy June 2025 • 3 min read.

"A look at how technology, innovation, and strategic investment shape the future of developing economies."

Economic growth has been a central topic of discussion since the days of Adam Smith. The prevailing understanding, underscored by economists like Solow, posits that technological advancement, not just input, is a key driver. While this holds true for developed and developing countries alike, the specifics of technological impact can differ significantly.

Beyond technology, a range of factors, including institutional frameworks, education, and environmental considerations, play vital roles in shaping economic trajectories. These elements can work in synergy or at cross-purposes. For instance, rapid technological advancement, while beneficial, can strain natural resources, leading to pollution and other environmental challenges.

Understanding the complex interplay between technology and economic progress is crucial, particularly for nations striving to advance. This article explores the insights from the Macroeconomic Dynamics special issue on technology, examining how various factors, from social capital to public investment, influence development.

Strategic Public Investment: The Key to African Growth?

Sustainable economic development illustrated through a blend of cityscape and natural landscapes, emphasizing technological innovation.

One study in the Macroeconomic Dynamics special issue focuses on the role of public investment in African economies, with Fossu, Getachew, and Ziesemer using a Cobb-Douglas production to explore the relationship between public investment and economic growth. This approach is aimed to identifying the optimal levels of public investment that maximize growth potential.

Their research challenges previous assumptions. Instead of aligning with earlier findings, their analysis suggests that the growth-maximizing level of public investment in African countries is approximately 10% of GDP. The study further simulates optimal public investment shares, estimating them to be between 8.1% and 9.6% of GDP. These findings point to a significant underinvestment in the public sector across Africa.

Underinvestment Highlighted: Studies suggest African nations are significantly underinvesting in public sectors.
Growth Maximization: Optimal public investment is estimated around 10% of GDP for maximum economic impact.
Welfare Implications: Optimal public investment share could boost welfare significantly.

These insights call for a reassessment of investment strategies to unlock Africa's economic potential. By strategically increasing public investment, African nations can foster sustainable growth and improve overall welfare.

Charting a Course for Sustainable Development

Understanding and strategically leveraging technology, public investment, and social dynamics is paramount. As research continues to refine our understanding of these complex interactions, policymakers and stakeholders must remain agile, adapting their strategies to harness the full potential of innovation for the betterment of society.

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Everything You Need To Know

What is the main factor driving economic growth according to economists like Solow?

According to economists like Solow, technological advancement is the key driver of economic growth. This perspective emphasizes that it's not just the quantity of inputs, but also improvements in technology, that propel economic development in both developed and developing countries. However, the specific ways technology impacts these countries can differ considerably.

Besides technology, what other important factors influence a country's economic growth?

Besides technology, several other factors play vital roles in shaping economic trajectories. These include institutional frameworks, education, and environmental considerations. These elements can either work together to enhance growth or create challenges if not managed properly. For example, rapid technological advancement might strain natural resources, leading to environmental challenges.

According to research in Macroeconomic Dynamics, what is the ideal level of public investment for African economies to maximize growth?

Research by Fossu, Getachew, and Ziesemer in the Macroeconomic Dynamics special issue suggests that the growth-maximizing level of public investment in African countries is approximately 10% of GDP. Their simulations further estimate optimal public investment shares to be between 8.1% and 9.6% of GDP, which points to a significant underinvestment in the public sector across Africa. Their research used a Cobb-Douglas production function to explore the relationship between public investment and economic growth. This is in contrast to previous findings.

What are the implications of African nations underinvesting in their public sectors, according to the Macroeconomic Dynamics special issue?

The Macroeconomic Dynamics special issue highlights that African nations are significantly underinvesting in their public sectors. This underinvestment means that these countries are not reaching their maximum economic potential. By strategically increasing public investment to the optimal levels (around 10% of GDP), African nations can foster sustainable growth and improve overall welfare, unlocking significant economic potential that is currently untapped. The optimal public investment share could boost welfare significantly.

How can policymakers and stakeholders promote sustainable development by leveraging technology and strategic public investment?

To promote sustainable development, policymakers and stakeholders must understand and strategically leverage technology, public investment, and social dynamics. They need to remain agile and adapt their strategies as research refines the understanding of these complex interactions. By focusing on optimal public investment, particularly in areas identified as underfunded, and by harnessing the potential of technological innovation, societies can achieve significant economic betterment while also addressing environmental and social challenges.