Working Paper: CEPR ID: DP6293
Authors: Kevin H. O'Rourke; Ahmed Rahman; Alan M. Taylor
Abstract: Technological change was unskilled-labour-biased during the early Industrial Revolution of the late eighteenth and early nineteenth centuries, but is skill-biased today. This fact is not embedded in extant unified growth models. We develop a model of the transition to sustained economic growth which can endogenously account for both these facts, by allowing the factor bias of technological innovations to reflect the profit-maximising decisions of innovators. Endowments dictated that the initial stages of the Industrial Revolution be unskilled-labour biased. The transition to skill-biased technological change was due to a growth in ``Baconian knowledge'' and international trade. Simulations show that the model does a good job of tracking reality, at least until the mass education reforms of the late nineteenth century.
Keywords: demography; endogenous growth; trade
JEL Codes: F15; J13; J24; N10; O31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unskilled-labor biased technological change (F66) | decline in skill premia (F66) |
| unskilled-labor biased technological change (F66) | adversely affected skilled workers (F66) |
| growth in baconian knowledge (B12) | transition to skill-biased technological change (O33) |
| international trade (F19) | transition to skill-biased technological change (O33) |
| transition to skill-biased technological change (O33) | increased demand for skilled labor (J24) |
| demographic transition (J11) | rising education levels in the north (I24) |
| demographic transition (J11) | controlled population growth in the north (J11) |
| nature of trade (F19) | great divergence between the north and south (N91) |
| factor endowments (D29) | great divergence between the north and south (N91) |
| technological change (O33) | labor supply (J20) |
| labor supply (J20) | pace and direction of technological advancements (O33) |