In other words, this effect arises when activities whose relative prices are falling tend to increase their volume shares of total production and vice versa.
That finding proved Soviet economic growth in the first half of 20th century to be subject to inappropriate technique, rather than false statistics.
Because of tremendous technological development, thus, disproportional change in prices for different goods, the “Gerschenkron effect” has become even more pronounced in the second half of 20th century.
It also highlights that in Russia, which lacks administrative and technical skills, the problem of finding the necessary qualified labor force to be employed in large-scale enterprises is increasing.
However, for cross-time, within country, comparisons in centrally planned economic systems (e. g. in the Soviet Union), ), the “Gerschenkron effect” is practically non-existent since prices are heavily distorted to provide an optimal resource allocation.
[3] The “Gerschenkron effect” is often used to test relative rates of technical change; simply said, “early-weighted” indices of production are “upward-biased” (overstating the true economic growth rate) and “late-weighted” indices of production are “downward-biased.” [1] The “Gerschenkron effect” can be used for either long-term or short-term analysis and at various levels of economy.
[6] This effect was shown to be the major factor in overstating economic growth of Soviet Union in 20th century [1] and in the development of Sweden’s commodity production from the period of break-through to the high tide of industrialism.
Observing higher productivity growth in industry contemporaneous output gap is the weak “Gerschenkron effect.” Which propel economic convergence, however, that occurs only in theoretical perspective in which the aggregate level is taken in account.
In highly competitive industries, firms may be forced to innovate in order to maintain their market share, even if they are relatively technologically backward.
Furthermore, recent research has shown that the Gerschenkron effect can also be influenced by factors such as the quality of institutions and the level of human capital in a country.
In particular, countries with strong institutions and high levels of education tend to be better able to take advantage of technology transfer opportunities and achieve faster rates of catch-up.
However, the strength of the effect can be influenced by factors such as competition, institutions, and human capital, and it may not hold uniformly across all industries and countries.
This aided in the development of a more efficient transportation and communication infrastructure, facilitating the movement of products and services across the country and around the world.
The German government aided the expansion of corporations such as BMW, Mercedes-Benz, and Volkswagen, which became global brands and contributed to Germany's economic success.
The German government spent substantially in education and vocational training programs to provide its workers with the skills and knowledge needed to operate and maintain the new industrial equipment and technologies that were introduced.
Germany's postwar economic success may be credited to its inventive and dynamic corporate culture, in addition to investments in infrastructure and human capital development.
German enterprises were quick to adapt new technologies and manufacturing processes, and they placed a significant emphasis on R&D, allowing them to remain ahead of competitors in the worldwide market.
[10] A stable political climate and a supportive legislative framework that promoted company development and investment aided this culture of innovation and entrepreneurship.
The founding of the European Union and the construction of the single market were important factors in Germany's postwar economic success.
The combination of infrastructural investment, a supportive government, and a highly qualified workforce allowed Germany to achieve fast post-war economic expansion, eventually becoming one of the world's top economies.
Germany is still a highly industrialised country with a strong emphasis on innovation and technology, and its success demonstrates the value of investing in critical economic variables such as infrastructure, human capital, and supporting government policies.
After the war, Japan was able to catch up or surpass globally advanced economies, such as in Europe or North America, experiencing the "Gerschenkron Effect".
This occurred due to rates of investments into productive plants, equipment, education, infrastructure and adoption of technologies and techniques from other countries, such as the United States.
These included electronics such as Sony and Panasonic, automobile manufacturing such as Toyota and Honda, robotic such as Fanuc and Yaskawa and oxygen furnace steel production.
[11]Furthermore, the government aided in the transfer of technology and processes from the United States, helping Japanese firms to expand swiftly and become globally competitive.
The Japanese government created policies that promoted bank expansion and offered loans to help the growth of the industrial sector.
The ministry was in charge of monitoring Japan's financial system and was instrumental in creating policies that aided industrial development.
The Japanese government also instituted regulations to promote the expansion of the stock market, which offered a new source of funding for businesses.