Chapter Three
Accelerating Economic Growth in
Industrial Societies: The Process of
Expansive Reproduction
Economic Growth: The New
Perspectives for Theory and Policy
Tai-Yoo Kim (Seoul National University)
and
Almas Heshmati (Sogang University)
Springer 2014
Copyright © 2013 Tai-Yoo Kim and Almas Heshmati
CONTENTS
 3.1 Compare growth curves of agricultural society
and industrial society.
 3.2 Look at previous studies relevant to accelerating
economic growth (AEG) in the industrial society.
 3.3 Find the expansive reproduction structure
enabling the AEG, and explain why virtuous
cycle is possible.
 3.4 Summarize the findings.
 3.5 References
3-1 Introduction
Agricultural society vs. Industrial society
The agricultural revolution enabled humans to
escape the subsistence level. However, there was
no surplus production and thus low or no
population growth.
In contrast, an industrial society is a “marvel” age:

Exponential growth in overall wealth

Explosive population growth
3-1 Introduction
Agricultural society vs. Industrial society
Figure 3 - 1
(a) World Population
Growth and
(b) Global Average
per Capita
GDP(pGDP)
 Stagnant in population and per capita income growths
before Industrial Revolution.
 Both grew exponentially after the transition to industrial
societies.
3-1 Introduction
Agricultural society vs. Industrial society
Accelerating economic growth (AEG) is derived by
dividing pGDP changes by time. AEG is the
concept of ‘Economic growth speed’.
Compare it with “the economic growth rate”, the
rate of change in pGDP as a percentage.
Try to calculate AEG and economic growth rate,
and compare their different meaning:

A country with a pGDP of $40,000 increased
its pGDP $40,800 next year. While another
with a pGDP of $400 obtains $440 of pGDP
next year.
3-1 Introduction
Time-output Relations
Uniform Economic
Growth (UEG)
Figure 3 - 2
(a) Decelerating Economic Growth in Agricultural Society and
(b) Accelerating Economic Growth in Industrial Society
3-2 Accelerating Economic Growth in Industrial Society
Ideas about AEG from existing economic theories
In The Wealth of Nations (1776), Adam Smith
illustrates the theory of the division of labor by
describing the case of the pin manufacturing process.

Division of labor connected to production
efficiency.

Technology development and process
innovation lead to production efficiency and
cause AEG.
3-2 Accelerating Economic Growth in Industrial Society
Ideas about AEG from existing economic theories
Marshall (1920)’s study of increasing returns to scale
also discusses the concept of AEG.

When a company reduces costs and
increases production through scale
economies, internal economies of scale are
achieved.

By contrast, external economies of scale can
be achieved by industrial development.

Therefore, if these two conditions are achieved,
increasing returns to scale can be possible.
3-2 Accelerating Economic Growth in Industrial Society
Ideas about AEG from existing economic theories
Chandler (1990) studies economies of scale and
scope by analyzing liquidity in industrial capitalism.

Mass production in an industrial society
reduces the cost of manufacturing products.

The same manufacturing facility can be
used for many purposes and the same
machine parts can be used to manufacture a
variety of products.
3-2 Accelerating Economic Growth in Industrial Society
Ideas about AEG from existing economic theories
Myrdal (1957) has found that the system moves
continuously in order to break the balance of power
rather than strike a balance.

AEG is unbalanced economic growth.

In follow-up studies, Kaldor (1978) states that
growth in production induces growth in
productivity via increasing returns.
3-2 Accelerating Economic Growth in Industrial Society
Ideas about AEG from existing economic theories
Romer’s endogenous economic growth theory (1990)
introduces the role of technology as an endogenous
variable.


Growth can be achieved through:

Enhanced technological innovations.

The increase of a number of intermediate
inputs invested, and the qualitative
improvement of each intermediate material.
Improvement in intermediate material increases
input–output efficiency.
3-2 Accelerating Economic Growth in Industrial Society
More close theories to the concept of AEG
The theory of the business cycle investigates the
repetition of fixed cyclic patterns of economic activity.

In the stage of prosperity or expansion,
AEG is shown.
In studies on demographic transition and economic
growth, Galor and Weil (2000) have analyzed various
types of economic growth in the Malthusian age, postMalthusian age, and present economic growth age.

Post-Malthusian age, and present economic
growth age is similar to AEG concept.
3-3 Model of AEG in an Industrial Society
AEG patterns and historical evidence
AEG patterns can be drawn through Solow’s
neoclassical model.
Figure 3 - 3
Shift in the APF
According to Exogenous
Technological
Development)
Solow (1957) named this the
aggregate production
function (APF).
The curve was shifted by the
technical change between t1
and t2.
3-3 Model of AEG in an Industrial Society
AEG patterns and historical evidence
AEG induced through an extension of APF.
Figure 3 - 4
Time–output Relations as per Solow’s APF Shifts
3-3 Model of AEG in an Industrial Society
AEG patterns and historical evidence
Another source for drawing AEG patterns is
Ruttan(2001)’s induced innovation model.
Figure 3 - 5
Time–output Relations in
an Industrial Society from
the Point of View of the
Induced Innovation Model
As the meta-production function
envelops different production
functions, the accelerating
production curve is derived when
the evolving production
technologies of an industrial
society are taken into account.
3-3 Model of AEG in an Industrial Society
Four historical evidence of AEG patterns
Growth curves of nine countries before and after
the Industrial Revolution.
Figure 3 - 6
The Trend of Economic Growth in Nine Countries. Enlarged and Smoothed.
3-3 Model of AEG in an Industrial Society
Four historical evidence of AEG patterns
England and 20 other industrial society’s growth pattern.
Figure 3 - 7
(a) pGDP in England (1970s US$), 1700–2000.
(b) pGDP in OECD Top 20 Countries, 1950–2004.
3-3 Model of AEG in an Industrial
Society
Four historical evidence of AEG patterns
AGE patterns by selected country groups.
Figure 3 - 8
Trends in pGDP of
Selected Country Groups
Ten Western European
countries: Austria, Belgium,
Denmark, France, Germany,
Italy, the Netherlands, Sweden,
Switzerland, and the UK.
Six Asian countries: India,
Malaysia, Singapore, South
Korea, Taiwan, and Thailand.
3-3 Model of AEG in an Industrial Society
Four historical evidence of AEG patterns
Indirect evidence: Labor productivity changes, 1870-1998
Figure 3 - 9
The Labor Productivity of 12 Countries, 1870–1998.
3-3 Model of AEG in an Industrial Society
Simple reproduction structure in a pure agricultural economy
Compared to an industrial society, a pure
agricultural society has a simple reproduction
structure.
In a pure agricultural society, the principal factor
that prevents expansive reproduction is the
inelasticity of demand.
Supply side also has inherent limitations owing to
the amount of available land and labor.
3-3 Model of AEG in an Industrial Society
Simple reproduction structure in a pure agricultural economy
Figure 3 - 10
(a) Simple Reproduction
Structure in an
Agricultural DEG Society.
(b) Stagnant Level in
Each Stage of the
Circulation of Simple
Reproduction.
3-3 Model of AEG in an Industrial Society
Expansive Reproduction Structure as a Driving Force
behind an Accelerating Economy
Figure 3 - 11
Expansive Reproduction Structure in an Industrial Society experiencing AEG.
3-3 Model of AEG in an Industrial Society
Expansive Reproduction Structure as a Driving Force
behind an Accelerating Economy
Six paths constituting expansive reproduction
structure (1):
Path a: Given the market equilibrium, capitalists can
secure profits, their accumulation becomes
significant capital for reinvestment, and
income increases.
Path b: Capital accumulation and income increase
expand existing demand.
Path c: Accumulated capital is reinvested in order to
improve technological innovation and
increase production.
3-3 Model of AEG in an Industrial Society
Expansive Reproduction Structure as a Driving Force
behind an Accelerating Economy
Six paths constituting expansive reproduction structure
(2):
Path d: As a result of technological innovation, qualityenhanced new products is launched and new
demand is created.
Path e: The expansion of existing demand and creation of
new demand increase net demand in the market.
Path f: The increase in production through the increase in
production capacity and improvements in
productivity, and the launch of new products
through technological innovation, increase net
supply to the market.
3-3 Model of AEG in an Industrial Society
Expansive Reproduction Structure as a Driving Force
behind an Accelerating Economy
Figure 3 - 12
Accelerating Trends at Each
Stage Created by the
Circulation of Expansive
Reproduction.
Notes: M: Market size, K:
Capital accumulation, S: Net
supply, D: Net demand
3-3 Model of AEG in an Industrial Society
Expansive Reproduction Structure as a Driving Force
behind an Accelerating Economy
Table 3.1 Labor productivity in the cotton spinning Industry
Types of Cotton Spinning Processor
Required Labor Hours
Indian labor (18th century)
50,000
Crompton’s self-actor (1780)
2,000
100 weight self-actor (1790)
1,000
Power-aided self-actor (1795)
300
Robert’s self-actor (1825)
135
Modern cotton spinning machine
40
Source: Modified from Catling (1970).
3-3 Model of AEG in an Industrial Society
Expansive Reproduction Structure as a Driving Force
behind an Accelerating Economy
Figure 3 - 13
Patent Registration in the
Industrial Revolution Era,
England, 1700-1809. Source:
Mitchell and Dean (1962)
3-3 Model of AEG in an Industrial Society
Four stages of Expansive Reproduction Structure
Market Equilibrium Stage:
 Expanded production (due to supply capacity
expansion) and expanded consumption (due to
demand increase that creates equilibrium in the
market) represent the scale of the economy or
market.
Gras (1939) claims that, the industrial capitalist era
witnessed the excessive demand and the expansion
of supply.
3-3 Model of AEG in an Industrial Society
Four stages of Expansive Reproduction Structure
Capital Accumulation Stage:
 It enables reinvestment into expansion by
accumulating capital for the company and by
increasing income for consumers.
 Increased profits enable higher wages to be paid,
which increases the spending power of
consumers.
Reinvested toward the expansion of production
capacity (plants and equipment) and the development of
new technology (R&D), which can be commercialized lin
the form of new products or improved current products.
3-3 Model of AEG in an Industrial Society
Four stages of Expansive Reproduction Structure
Expansion of Supply through Technological
Innovation stage (1):
 Technologies for the improvement of
existing products (which is quantitative)
 Technologies for the development of new
products (which is qualitative)
The quantitative one maintains the existing levels
of production. The qualitative one creates added
value through technological innovation.
3-3 Model of AEG in an Industrial Society
Accelerating Economic Growth
Figure 3 - 14
Qualitative
Development in
Accelerating
Societies
3-3 Model of AEG in an Industrial Society
Accelerating Economic Growth
Figure 3 - 14
Qualitative Development
in Accelerating Societies
3-3 Model of AEG in an Industrial Society
Accelerating Economic Growth
Figure 3 - 14
Qualitative Development
in Accelerating Societies
3-3 Model of AEG in an Industrial Society
Accelerating Economic Growth
Figure 3 - 14
Qualitative Development
in Accelerating Societies
3-3 Model of AEG in an Industrial Society
Four stages of Expansive Reproduction Structure
Expansion of Demand stage:
a. An increase in existing demand as a result
of an increase in the purchasing power of
consumers.
b. The creation of new demand that results
from the release of new products.
The creation of new demand is an important
resource in an industrial society.
3-3 Model of AEG in an Industrial Society
Four stages of Expansive Reproduction Structure
Virtuous circle of expansive reproduction:
There are clear causal relationships between these
four stages of expansive reproduction.
The release of new products (following investment
in R&D and the creation of new demand because of
increased consumer spending power and strong
marketing campaigns) are the factors driving the
qualitative aspect of economic growth.
The qualitative aspect is an important causal factor
that allows positive feedback in expansive
reproduction to be sustained in industrial societies.
3-4 Conclusion
Identification of the growth pattern that
differentiates an industrial society from an
agricultural society.
AEG is a inherent curve in an industrial society.
AEG is enabled by the virtuous cycle of expansive
reproduction.
 Critical factor for a virtuous circle of
expansive reproduction is technological
innovation under sufficient capital
accumulation.
SUMMARY
•
•
•
•
•
•
•
Industrial societies are characterized by accelerating growth.
Such growth is generated by expansive reproduction, a process by
which economic growth occurs through the accumulation of capital,
reinvestment, and technological innovation.
Four stages constitute for a virtuous circle of expansive reproduction
Especially technological innovation under capital accumulation is a
key factor for a virtuous circle.
This pattern of growth is fundamentally different from that of
agricultural societies, which is decelerating.
The findings presented herein provide both a more accurate
understanding of economic growth patterns over time and a basis for
the formulation of policy for achieving accelerating economic growth.
In addition, the implications of the findings offer insights into the
elucidation of economic growth trends of late industrializing
economies.
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