Lecture 3

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Lecture 4
Nature and extent of pre-industrial
economic growth
Low growth of income per head
and productivity
• The Malthusian equilibrium characterized
by subsistence income and constant
population (zero population growth) cannot
be verified historically.
• Slow technological progress and income
above subsistence and increasing slowly
in major regions seem to be typical for preindustrial Europe
Malthus + Smith = slow growth
• ‘Smithian’ gains from economies of repetition
and learning by doing can balance the forces of
diminishing returns
• Let K represent a state of knowledge =
technology
• As population grows diminishing returns will
lower average output per worker, A to B
• But a shift to a more advanced technology K’ will
increase output, B to C
A to B is the Malthusian move and B to C is
generated by ‘Smithian’ forces
Average output
per worker
C
A
B
K’
K
Labour
Who wins?
• What matters is the relative strength of
• on the one hand: the forces of diminishing
returns
• and on the other: the magnitude of
technological progress caused by learning
by doing
Smithian and Malthusian forces
Population
Growth +
+
Division of Labour
enhances
economies of
practice
Diminishing
Returns
+
Income per
head
+
Learning by Doing
based Technological
Change
-
+
Two methods of measuring total
factor productivity
• Conventional total factor productivity
measurements need data on output and
input quantities from national income
accounts
• Historical national accounts have not yet
been produced for periods before 1800.
• The conventional method cannot therefore
be used.
Residuals matter
• TFP = increase in output – increase in the
weighted sum of inputs.
• If TFP is positive there is a residual output
increase that cannot be accounted for by
inputs.
• That residual output can be explained by
more efficeint use of the inputs =
technological progress
A new approach to TFP analysis
• The appendix of Chapter 4 derives primal
(Solow-residual) version of TFP as well as
the dual approach which is more suitable
for analysis of poorly documented
economies.
• Dual approach: TFP = sKr* + sLw* + sIi*
• s is share of factor and r, w,i are rates of
profit, wage and land rent.* means
proportional change.
Intuition behind the ‘Dual approach’
• Imagine that both the wage per unit of labour
and the rent per unit of land increase.
• The value of output equals the value of factor
incomes. If real factor rates (incomes) increase
per unit of input factors then output must be
increasing for given inputs
• TFP measures that increase
High TFP growth in England before
Black Death
• Using the ‘Dual approach’ Persson (that’s
me) found TFP growth around 0.18 per
cent per year during the 100 years before
the Black Death c.1350.
• The period after the Black Death was a
period of slow down in TFP growth
• Results indicate a ‘Boserupian’
mechanism
Ester Boserup – the internationally most
acclaimed female cand polit so far
• Boserup argued that technological
advance in agriculture often was
stimulated by land shortage
• Around 1300 Europe had experienced 600
years of continuous population increase
• The most advanced areas from a
technological point of view were densely
populated
Ph. Hoffman’s TFP analysis of
French agriculture
• Hoffman at CALTECH analyzed French
agriculture in the Early Modern area using
the ‘Dual approach’.
• Results similar to Persson’s
• But there are additional insights: large
regional differences
TFP in France 1520-1790
Internal peace is good for growth
• The West and Normandy were
outperformed by the densely populated
areas around Paris and the Rhone delta
• Higher incidence of internal conflicts –
religious wars – is partly to blame for poor
performance
• Note the speed up of TFP growth in the
Paris area in the 18th century
Measures of output per labourer.
• Another method detecting labour
productivity uses the occupational
distribution of the population.
• Urbanization ratio is interpreted as the
proportion of the non-food producing
labour force of total labour force
• Principle: Increasing urbanization reveals
increasing labour productivity in the
agricultural sector
Labour productivity vs. TFP
• In preindustrial economies capital per
labourer is constant and land , if anything,
falls per labourer.
• Implication: labour productivity is
equivalent to or slightly lower than TFP.
Intuition
• Imagine a closed economy with a labour force of
100 and a yearly per capita consumption of food
at 1 unit
• 95 of the workers produce the 100 units of food,
5 work in urban professions
• Output per agricultural labourer is 1.053 =
100/95
• Now there is a productivity increase in
agriculture: 85 workers are sufficient to produce
the 100 units of food
• Output per agricultural worker has increased to
1.18
Let’s make the argument more
realistic
• The economy is not closed, that is, there
might be exports or imports of food
• Income might increase and per capita
consumption of food will therefore
increase
Definitions
•
•
•
•
Q is agrarian output of food
A is agrarian labour force
N is total labour force
c is per capita consumption of food and is
increasing with increasing income
• z is the ratio of domestic production to
domestic consumption of food (if z is
smaller (larger) than 1 then the economy
imports (exports) food
More definitions
• It follows that c times N = total consumption and
c times z times N = total production
• Labour productivity is
• Q/A = czN/A
• The intuitive result just presented is obvious: if
all elements in Q = czN are constant and A falls,
that is the urbanization ratio ( 1- A/N) increases,
labour productivity increases
Further insights
• Q/A = czN/A
• If c increases (falls) labour productivity
increases (falls)
• If z falls (increases) labour productivity
falls (increases)
Trends in urbanization
Percent
40
30
20
10
0
500
1000
1500
1850
Italy
Low Countries (Northern France, Belgium, Netherlands)
Continental Western Europe
Britain
China
Historical results
• Persson investigated two advanced areas,
Netherlands and Tuscany, two to three
centuries before the Black Death and
found annual growth of between 0.1-0.2
per cent
• Bob Allen at Nuffield College, Oxford, used
a similar method indicating large regional
variations in the Early Modern period
Bob Allen on Early Modern Europe
Success and failure
• Why did the Low Countries perform
differently: Belgium failed and the
Netherlands succeeded? Politics matter
• English agriculture borrowed ideas from
the Netherlands: an early example of
technological catch-up
• Question: Are Allen’s and Hoffman’s
results regarding France compatible?
Conclusion
• The historical record suggests that many
regions in pre-industrial Europe had slow
productivity growth, say, in the order of
0.1.to 0.25 per cent per year permitting
income to remain above subsistence
• The basis for this productivity growth was
division of labour in cities and agricultural
specialization as well as learning by doing
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