Ebook Why England? Demographic factors, structural change and physical capital accumulation during the Industrial Revolution
Britain was the first country to break free from Malthusian constraints, with population size and living standards starting to grow in tandem after 1750 [Crafts (1985), Wrigley (1983)]. In many parts of the world, however, growth rates of per capita income took a long time to accelerate. Eventually, more and more countries industrialized, first in Europe and North America, and from the 20th century onwards in other areas of the globe.
The relative size of economies, the onset of the demographic transition, and living standards of citizens are still profoundly influenced by the timing of Industrial Revolutions around the globe [Galor and Mountford (2003)] with dramatic consequences for the economic and political history of the world that are still felt today.
Why did some countries industrialize so much earlier than others? Unified growth theory [Galor and Weil (2000), Galor and Moav (2002), Jones (2001)] offers a consistent explanation for the transition from century-long Malthusian stagnation to rapid growth. What is missing is a better understanding of why some countries overcame stagnation at radically different points in time.
The question is almost as old as industrialization itself. Economic historians have stressed a long list of factors, ranging from the property rights regime to the land tenure system, that might have favored Britain [Landes 1999]. Galor (2005) argues that geographical factors and historical accident interacted to delay or accelerate the timing of the ”Great Escape”, and that ”variations in institutional, demographic, and cultural factors, trade patterns, colonial status, and public policy” may have played a role. This paper aims to provide a systematic answer to the questions “Why England?” and “Why Europe?” In doing so, it offers clear quantitative evidence on the role of starting conditions and the nature of constraints that delayed industrialization for centuries in many parts of the world.
In our model, chance can play an important role. Industrialization is treated as the result of a probabilistic process. During the late medieval and early modern period, sustained expansions occurred in many countries [Braudel 1973]. Yet most of these growth episodes sooner or later ground to a halt. Some advanced economies (such as the Italian Republics) went into decline, while countries like the Netherlands stagnated at high income levels. This is why economic historians have often been sceptical of industrialization theories where the final outcome is pre-determined [Clark (2003), Mokyr and Voth (2007)]. What explains these starts and stops? And could other countries have succeeded before Britain? Crafts (1977) argued that accidental factors, and not systematic advantages, may have been crucial that France, for example, could have easily industrialized first had it not been for a number of random factors.
To examine the determinants of early economic development, this paper develops a simple stochastic model of the first Industrial Revolution the transition from the Malthusian to the post-Malthusian regime, in the terminology of unified growth theory. In the spirit of Stokey (2001), our model is then calibrated with eighteenth-century English data. We find that chance played a role in the timing and speed of Britain’s initial surge it’s actual performance was at the upper end of the expected range of outcomes in our model. By altering the parameters of the calibrated model, we derive probabilities of the escape in other parts of the world. France could have experienced substantial growth, based on our model, but the manufacturing employment in 1850 is lower than in Britain in most of our simulations.
As emphasized by Galor and Moav (2004), physical accumulation is crucial for the first transition. This is reflected in our model, which emphasizes TFP advances as a result of growing capital inputs. The key factors influencing industrialization probabilities in our model are starting incomes, the nature of shocks, inequality, and the demographic regime. Galor and Moav (2004) argue that inequality should be beneficial for industrialization in its initial stages, when physical capital is crucial; during the second transition to self-sustaining growth, human capital becomes a key input, and inequality is harmful. We add another dimension emphasized by Fogel (1993). As many as 20 percent of the population in 18th century France possibly did not receive enough food to work for more than a few hours a day. Also, when inequality was too great prior to the Industrial Revolution, crisis mortality could be high. This undermines growth by reducing capital stock and the speed of productivity advance. We conclude that inequality is only beneficial via the savings channel if the population is sufficiently well-fed to avoid famines and chronic undernutrition.
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