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Capital substitution in an industrial revolution

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  • Peter Berg
  • Mark Staley

Abstract

A unified growth model is presented in which productivity growth is driven by learning-by-doing. We show that the growth rate of productivity is an increasing function of the share of capital. It is assumed that the industrial sector has a higher capital share than the agricultural sector and that the ability to substitute one output for the other in the construction of capital goods slowly rises over time. Two distinct regimes of constant growth emerge, connected by a rapid transition in which the growth rate of income increases by an order of magnitude, indicative of an industrial revolution.

Suggested Citation

  • Peter Berg & Mark Staley, 2015. "Capital substitution in an industrial revolution," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1975-2004, December.
    • Handle: RePEc:cje:issued:v:48:y:2015:i:5:p:1975-2004
    DOI: 10.1111/caje.12187
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    JEL classification:

    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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