Working Paper: CEPR ID: DP5429
Authors: Joseph Zeira
Abstract: This paper builds a model of growth through industrialization, as machines replace workers in a growing number of tasks. This enables the economy to experience long-run growth, as machines become servants of humans, and as their number can grow unboundedly. The mechanism that drives growth is the feedback between industrialization and wages. High wages are incentives to use machines and industrialize, while industrialization raises wages. The model shows that industrialization and growth take off only if the economy is productive enough. It also shows that monopoly power can stifle growth, as it lowers wages. Hence, a one-time increase in productivity, or a reduction of monopoly power can push economies from stagnation to industrialization.
Keywords: economic growth; industrialization; technology
JEL Codes: O14; O30; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High wages (J31) | Industrialization (O14) |
| Industrialization (O14) | High wages (J31) |
| Productivity increase (O49) | Long-run growth (O49) |
| Monopoly power (D42) | Lower wages (J31) |
| Lower wages (J31) | Reduced incentive for industrialization (N13) |
| Increase in productivity (O49) | Industrial revolution (O14) |
| Reduction in monopoly power (D42) | Industrial revolution (O14) |