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 pre-industrial 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
A
B
C
K’
K
Average output per worker
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
+
+
Learning by Doing based Technological Change
+
+
Income perhead
Diminishing Returns
-
High TFP growth in England before Black Death
• Using the ‘Dual approach’ Persson (that’s me) found TFP growth around 0.2 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 Results similar to Persson’s.
• Productivity growth of about 0.2 per cent per year.
• But there are additional insights: large regional differences
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
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)
Stylized facts
• In a baseline estimate we assume that the agrarian labour force falls from 95 to 80 percent of the total labour force between year 1000 and 1300
• The economy remains self sufficient in food, z = 1
• Marginal propensity to consume food is 0.6 and the urban/rural income gap increases from 1 to 1.25
Trends in urbanization
0 500 1000 1500 1850
Percent
10
20
30
40
ItalyLow Countries (Northern France, Belgium, Netherlands)
Continental Western EuropeBritain
China
Illustrations
99
109
119
129
139
149
159
1000 1350
1 (la0=0,95;la1=0,8;li0=0,05;li1=0,2;k0=1;k1=1;s0=1,s1=1,25;m=0,6)
2 (m=0,4)
3 (s1=1,5)
4 (la1=0,7)
5 (k1=1,2)
6 (la1=0,7; k1=1,2; s1=1,5;, m=0,4)
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
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?
Back to Basics:$PPP
• In Holland $PPP per head increased from some 1200 to 2000 from the middle of the 16th century to the end of the 17th century.
• In England it was around 1700 in year 1688.
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
How did pre-industrial Europe do compared to India and China?
• We will return to a few slides I did not have time to discuss in the first lecture.
Top Related