The dynamics of technological congruence

Technological congruence examines the alignment between output elasticity and relative input costs and its effects on the contingent efficiency of new technologies. The introduction of biased technological change is driven by the relative levels of input costs. In capital-abundant countries, the adoption of new capital-intensive (labor-intensive) technologies leads to an increase in output with a corresponding rise in the output elasticity of capital (labor). This paper explores the endogenous determinants and effects of technological congruence dynamics. Growth raises wages and reduces capital costs, creating a Schumpeterian loop where the new wage-to-capital cost ratio induces new directed technological changes to boost productivity. An empirical analysis using Penn World Table (PWT) data for 136 countries from 1991 to 2019 supports these findings. The policy implications stress the role and hence the need to control the bias of technological innovations to foster growth. The alignment of factor costs is crucial for effective technology transfer and global competitiveness. Since the efficiency of new technologies depends on factor costs, international technology transfer has positive effects only if and when technological congruence increases.