Agricultural Revolution and Industrialization

Chu, Angus C. and Peretto, Pietro and Wang, Xilin (2020): Agricultural Revolution and Industrialization.

Abstract

This study explores how agricultural technology affects the endogenous takeoff of an economy in the Schumpeterian growth model. Due to the subsistence requirement for agricultural consumption, an improvement in agricultural technology reallocates labor from agriculture to the industrial sector. Therefore, agricultural improvement expands the firm size in the industrial sector, which determines innovation and triggers an endogenous transition from stagnation to growth. Calibrating the model to data, we find that without the reallocation of labor from agriculture to the industrial sector in the early 19th century, the takeoff of the US economy would have been delayed by about four decades.

• Item Type: MPRA Paper
• Language: English
• Keywords: agricultural technology; endogenous takeoff; innovation; economic growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Acemoglu, D., and Robinson, J., 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Business.

Aghion, P., and Howitt, P., 1992. A model of growth through creative destruction. Econometrica, 60, 323-351.

Ang, J., and Madsen, J., 2011. Can second-generation endogenous growth models explain the productivity trends and knowledge production in the Asian miracle economies?. Review of Economics and Statistics, 93, 1360-1373.

Ashraf, Q., and Galor, O., 2011. Dynamics and stagnation in the Malthusian epoch. American Economic Review, 101, 2003-2041.

Baten, J., 2016. A History of the Global Economy: 1500 to the Present. Cambridge University Press.

Cohen, W., and Klepper, S., 1996a. A reprise of size and R&D. Economic Journal, 106, 925-951.

Cohen, W., and Klepper, S., 1996b. Firm size and the nature of innovation within industries: The case of process and product R&D. Review of Economics and Statistics, 78, 232-243.

Galor, O., 2005. From stagnation to growth: Unified growth theory. Handbook of Economic Growth, 1, 171-293.

Galor, O., 2011. Unified Growth Theory. Princeton University Press.

Galor, O., and Moav, O., 2002. Natural selection and the origin of economic growth. Quarterly Journal of Economics, 117, 1133-1192.

Galor, O., Moav, O., and Vollrath, D., 2009. Inequality in landownership, the emergence of human-capital promoting institutions, and the great divergence. Review of Economic Studies, 76, 143-179.

Galor, O., and Mountford, A., 2008. Trading population for productivity: Theory and evidence. Review of Economic Studies, 75, 1143-1179.

Galor, O., and Weil, D., 2000. Population, technology and growth: From the Malthusian regime to the demographic transition. American Economic Review, 110, 806-828.

Garcia-Macia, D., Hsieh, C., and Klenow, P., 2019. How destructive is innovation?. Econometrica, 87, 1507-1541.

Grossman, G., and Helpman, E., 1991. Quality ladders in the theory of growth. Review of Economic Studies, 58, 43-61.

Ha, J., and Howitt, P., 2007. Accounting for trends in productivity and R&D: A Schumpeterian critique of semi-endogenous growth theory. Journal of Money, Credit, and Banking, 33, 733-774.

Herrendorf, B., Rogerson, R., and Valentinyi, A., 2014. Growth and structural transformation. Handbook of Economic Growth, 2, 855-941.

Herrendorf, B., Rogerson, R., and Valentinyi, A., 2020. Structural change in investment and consumption: A unified analysis. Review of Economic Studies, forthcoming.

Howitt, P., 1999. Steady endogenous growth with population and R&D inputs growing. Journal of Political Economy, 107, 715-730.

Iacopetta, M., Minetti, R., and Peretto, P., 2019. Financial markets, industry dynamics and growth. Economic Journal, 129, 2192-2215.

Kongsamut, P., Rebelo, S., and Xie, D., 2001. Beyond balanced growth. Review of Economic Studies, 68, 869-882.

Lagakos, D., and Waugh, M., 2013. Selection, agriculture, and cross-country productivity differences. American Economic Review, 103, 948-80.

Laincz, C., and Peretto, P., 2006. Scale effects in endogenous growth theory: An error of aggregation not specification. Journal of Economic Growth, 11, 263-288.

Laitner, J., 2000. Structural change and economic growth. Review of Economic Studies, 67, 545-561.

Lebergott, S., 1966. Labor force and employment, 1800-1960. NBER Book Series Studies in Income and Wealth.

Madsen, J., 2008. Semi-endogenous versus Schumpeterian growth models: Testing the knowledge production function using international data. Journal of Economic Growth, 13, 1-26.

Madsen, J., 2010. The anatomy of growth in the OECD since 1870. Journal of Monetary Economics, 57, 753-767.

Matsuyama, K., 1992. Agricultural productivity, comparative advantage, and economic growth. Journal of Economic Theory, 58, 317-334.

Murphy, K., Shleifer, A., and Vishny, R., 1989. Income distribution, market size and industrialization. Quarterly Journal of Economics, 104, 537-564.

Nurkse, R., 1953. Problems of Capital Formation in Underdeveloped Countries. New York: Oxford University Press.

Peretto, P., 1994. Essays on Market Structure and Economic Growth. Ph.D. dissertation, Yale University.

Peretto, P., 1998. Technological change and population growth. Journal of Economic Growth, 3, 283-311.

Peretto, P., 1999. Cost reduction, entry, and the interdependence of market structure and economic growth. Journal of Monetary Economics, 43, 173-195.

Peretto, P., 2015. From Smith to Schumpeter: A theory of take-off and convergence to sustained growth. European Economic Review, 78, 1-26.

Pomeranz, K., 2001. The Great Divergence: China, Europe, and the Making of the Modern World Economy. Princeton, NJ: Princeton University Press.

Romer, P., 1990. Endogenous technological change. Journal of Political Economy, 98, S71-S102.

Segerstrom, P., Anant, T., and Dinopoulos, E., 1990. A Schumpeterian model of the product life cycle. American Economic Review, 80, 1077-91.

Smulders, S., 1994. Growth, Market Structure and the Environment: Essays on the Theory of Endogenous Economic Growth. Ph.D. dissertation, Tilburg University.

Smulders, S. and van de Klundert, T., 1995. Imperfect competition, concentration and growth with firm-specific R&D. European Economic Review, 39, 139-160.

United Nations, 2011. Promoting Innovation in the Services Sector: Review of Experiences and Policies. United Nations Economic Commission for Europe.

Vollrath, D., 2011. The agricultural basis of comparative development. Journal of Economic Growth, 16, 343-370.

Weiss, T., 1986. Revised estimates of the United States workforce, 1800-1860. NBER Book Series Studies in Income and Wealth.