Technological congruence and the economic complexity of technological change

• The paper defines technological congruence with the matching between output elasticity and factor cost.
• The paper explores the effects of technological congruence on output.
• The effects of the paper shows the consequence of technological congruence on total factor productivity.
• The paper shows the endogenous dynamics of technological congruence.

Technological congruence is an emergent system property defined by the matching between the relative size of outputs’ elasticity with the relative abundance and cost of inputs in local factor markets. With given total costs, output is larger the larger is the output elasticity of the cheapest input. Technological congruence is a powerful tool that helps grasping the economic complexity of technological change with respect to the determinants of the direction of technological change and its effects in terms of growth accounting and specialization, both at the firm and the system level. Its appreciation stems directly from the advances of the economics of innovation in understanding the endogenous determinants of the introduction and diffusion of directed technological changes. Technological congruence is most relevant to influence the actual levels of total factor productivity of new technologies and – consequently – to shape the competitive advance of firms and countries.