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The transition to a new economy after the Second Industrial Revolution

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Author Info
Andrew Atkeson
Patrick J. Kehoe

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Abstract

During the Second Industrial Revolution, 1860–1900, many new technologies, including electricity, were invented. These inventions launched a transition to a new economy, a period of about 70 years of ongoing, rapid technical change. After this revolution began, however, several decades passed before measured productivity growth increased. This delay is paradoxical from the point of view of the standard growth model. Historians hypothesize that this delay was due to the slow diffusion of new technologies among manufacturing plants together with the ongoing learning in plants after the new technologies had been adopted. The slow diffusion is thought to be due to manufacturers’ reluctance to abandon their accumulated expertise with old technologies, which were embodied in the design of existing plants. Motivated by these hypotheses, we build a quantitative model of technology diffusion which we use to study this transition to a new economy. We show that it implies both slow diffusion and a delay in growth similar to that in the data.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 606.

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Date of creation: 2001
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Handle: RePEc:fip:fedmwp:606

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Keywords: Technology - Economic aspects

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-65, December. [Downloadable!] (restricted)
  2. David, Paul A, 1990. "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, American Economic Association, vol. 80(2), pages 355-61, May. [Downloadable!] (restricted)
  3. Gordon, Robert J, 2000. "Does the 'New Economy' Measure up to the Great Inventions of the Past?," CEPR Discussion Papers 2607, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Argote, L. & Epple, D., 1990. "Learning Curves In Manufacturing," GSIA Working Papers 89-90-02, Carnegie Mellon University, Tepper School of Business.
  5. Atkenson, Andrew & Khan, Aubhik & Ohanian, Lee, 1996. "Are data on industry evolution and gross job turnover relevant for macroeconomics?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 215-239, June. [Downloadable!] (restricted)
  6. Jovanovic, B. & Macdonald, G.M., 1988. "Competitive Diffusion," RCER Working Papers 160, University of Rochester - Center for Economic Research (RCER).
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  7. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October. [Downloadable!] (restricted)
  8. Castanheira, Micael & Roland, Gerard, 2000. "The Optimal Speed of Transition: A General Equilibrium Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 219-39, February.
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  9. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August. [Downloadable!] (restricted)
  10. Paul A. David & Gavin Wright, 1999. "General Purpose Technologies and Surges in Productivity: Historical Reflections on the Future of the ICT Revolution," Oxford University Economic and Social History Series _031, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  12. J. Bradford Jensen & Robert H. McGuckin & Kevin Stiroh, 2000. "The Impact of Vintage and Survival on Productivity: Evidence from Cohorts of U.S. Manufacturing Plants," Economics Program Working Papers 00-01, The Conference Board, Economics Program. [Downloadable!]
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  13. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn. [Downloadable!] (restricted)
  14. Brixiova, Zuzana & Kiyotaki, Nobuhiro, 1997. "Private sector development in transition economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 241-279, June. [Downloadable!] (restricted)
  15. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall. [Downloadable!] (restricted)
  16. Elhanan Helpman & Manuel Trajtenberg, 1996. "Diffusion of General Purpose Technologies," NBER Working Papers 5773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Jeffrey R. Campbell, 1997. "Entry, Exit, Embodied Technology, and Business Cycles," NBER Working Papers 5955, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Andrew Atkeson & Patrick J. Kehoe, 1993. "Industry evolution and transition: the role of information capital," Staff Report 162, Federal Reserve Bank of Minneapolis. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas Cooley & Ramon Marimon & Vincenzo Quadrini, 2003. "Aggregate Consequences of Limited Contract Enforceability," NBER Working Papers 10132, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Michael R. Pakko, 2005. "Changing technology trends, transition dynamics and growth accounting," Working Papers 2000-014, Federal Reserve Bank of St. Louis. [Downloadable!]
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  3. Eliasson, Gunnar & Johansson, Dan & Taymaz, Erol, 2004. "Simulating the New Economy," Ratio Working Papers 52, The Ratio Institute. [Downloadable!]
    Other versions:
  4. Dirk Krueger & Krishna B. Kumar, 2003. "US-Europe Differences in Technology-Driven Growth: Quantifying the Role of Education," NBER Working Papers 10001, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Urban Jermann & Vincenzo Quadrini, 2002. "Stock Market Boom and the Productivity Gains of the 1990s," NBER Working Papers 9034, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Boyan Jovanovic & Peter L. Rousseau, 2002. "Mergers as Reallocation," NBER Working Papers 9279, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Pedro S. Amaral & Erwan Quintin, 2005. "Finance Matters," Macroeconomics 0502007, EconWPA. [Downloadable!]
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  8. Rodolfo Manuelli & Ananth Seshadri, 2003. "Frictionless Technology Diffusion: The Case of Tractors," NBER Working Papers 9604, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Andreas Hornstein & Per Krusell, 2000. "The IT revolution : is it evident in the productivity numbers?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-78. [Downloadable!]
  10. Lubos Pastor & Pietro Veronesi, 2005. "Technological Revolutions and Stock Prices," NBER Working Papers 11876, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Erwan Quintin, 2008. "Contract enforcement and the size of the informal economy," Economic Theory, Springer, vol. 37(3), pages 395-416, December. [Downloadable!] (restricted)
  12. Schiff, Maurice & Wang, Yanling, 2004. "On the quantity and quality of knowledge - the impact of openness and foreign research and development on North-North and North-South technology spillovers," Policy Research Working Paper Series 3190, The World Bank. [Downloadable!]
  13. Chen, Kaiji & Song, Zheng, 2007. "Financial Friction, Capital Reallocation and Expectation-Driven Business Cycles," MPRA Paper 3889, University Library of Munich, Germany. [Downloadable!]
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