We use establishment-level data to study capital deepening -- increases in the capital-output ratio -- in American manufacturing from 1850 to 1880. In nominal terms, the aggregate capital-output ratio in our samples rose by 30 percent from 1850 to 1880. Growth in real terms was considerably greater -- 70 percent -- because prices of capital goods declined relative to output prices. Cross-sectional regressions suggest that capital deepening was especially importnat in the larger firms and was positively associated with the diffusion of steam-powered machinery. However, even after accounting for shifts over time in such factors, much of the capital deepening remains to be explained. Although capital deepening implies a fall in the average product of capital it does not necessarily imply that rates of return were declining. However, we find strong evidence that returns did decline. We also show that returns were decreasing in firm size, although the data are not sufficiently informative to tell us why it was so.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9923.
Length: Date of creation: Aug 2003 Date of revision: Handle: RePEc:nbr:nberwo:9923
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Find related papers by JEL classification: N61 - Economic History - - Manufacturing and Construction - - - U.S.; Canada: Pre-1913
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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.:
Howard Bodenhorn & Hugh Rockoff, 1992.
"Regional Interest Rates in Antebellum America,"
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National Bureau of Economic Research, Inc.
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Dorothy S. Brady, 1966.
"Price Deflators for Final Product Estimates,"
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in: Output, Employment, and Productivity in the United States after 1800, pages 91-116
National Bureau of Economic Research, Inc.
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