Directed Technical Change and the British Industrial Revolution

66 Pages Posted: 6 Jun 2019

See all articles by David I. Stern

David I. Stern

Australian National University (ANU) - Crawford School of Public Policy

John C.V. Pezzey

Australian National University

Yingying Lu

Australian National University

Multiple version iconThere are 2 versions of this paper

Date Written: May 29, 2019

Abstract

We build a directed technical change model where one intermediate goods sector uses a fixed quantity of biomass energy (“wood”) and another uses coal at a fixed price, matching stylized facts for the British Industrial Revolution. Unlike previous research, we do not assume that the level or growth rate of productivity is inherently higher in the coal-using sector. Analytically, greater initial wood scarcity, initial relative knowledge of coal-using technologies, and/or population growth will boost an industrial revolution, while the converse may prevent one forever. An industrial revolution, with accelerating growth in the coal-using sector, is the dominant dynamic outcome, but not inevitable if inter-good substitutability is high enough. Empirical calibration for 1560-1900 produces historically plausible results for changes in energy-related variables during British industrialization, and through counterfactual simulations confirms that it was the growing relative scarcity of wood caused by population growth that resulted in innovation to develop coal-using machines.

Keywords: economic growth, economic history, energy, coal, structural change

JEL Classification: N13, N73, O33, O41, Q43

Suggested Citation

Stern, David I. and Pezzey, John C. V. and Lu, Yingying, Directed Technical Change and the British Industrial Revolution (May 29, 2019). USAEE Working Paper No. 19-409 (June, 2019), Available at SSRN: https://ssrn.com/abstract=3398998 or http://dx.doi.org/10.2139/ssrn.3398998

David I. Stern (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

John C. V. Pezzey

Australian National University ( email )

Canberra, Australian Capital Territory
Australia

Yingying Lu

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

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