Working Paper: NBER ID: w23701
Authors: Raphal Franck; Oded Galor
Abstract: This research explores the effect of industrialization on the process of development. In contrast to conventional wisdom that views industrial development as a catalyst for economic growth, the study establishes that while the adoption of industrial technology was conducive to economic development in the short-run, it has detrimental effects on the standard of living in the long-run. Exploiting exogenous geographic and climatic sources of variation in the diffusion and adoption of steam engines across French departments during the early phases of industrialization, the research establishes that intensive industrialization in the middle of the 19th century increased income per capita in the subsequent decades but diminished it by the turn of the 21st century. The analysis further suggests that the adverse effect of earlier industrialization on long-run prosperity can be attributed to the negative impact of the adoption of unskilled-intensive technologies in the early stages of industrialization on the long-run level of human capital and thus on the incentive to adopt skill-intensive technologies in the contemporary era. Preferences and educational choices of second generation migrants within France indicate that industrialization has triggered a dual techno-cultural lock-in characterized by a reinforcing interaction between technological inertia, reflected by the persistence predominance of low-skilled-intensive industries, and cultural inertia, in the form of a lower predisposition towards investment in human capital. These findings suggest that the characteristics that permitted the onset of industrialization, rather than the adoption of industrial technology per se, have been the source of prosperity among the currently developed economies that experienced an early industrialization. Thus, developing economies may benefit from the allocation of resources towards human capital formation and skilled intensive sectors rather than toward the promotion of traditional unskilled-intensive industrial sectors.
Keywords: industrialization; economic development; human capital; long-run prosperity
JEL Codes: N33; N34; O14; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| adoption of industrial technology (O14) | economic development (short run) (O29) |
| intensive industrialization (O14) | income per capita (subsequent decades) (E25) |
| intensive industrialization (O14) | income per capita (turn of the 21st century) (D31) |
| unskilled-intensive technologies (F66) | human capital formation (J24) |
| industrialization (O14) | dual techno-cultural lock-in (O33) |
| historically industrial regions (N93) | low human capital aspirations (J24) |
| factors fostering industrial development (O25) | positive association with long-run development (O29) |
| 1% increase in total horsepower of steam engines (1860-1865) (N71) | GDP per capita (1860) (N93) |
| 1% increase in total horsepower of steam engines (1860-1865) (N71) | GDP per capita (1901) (N13) |
| 1% increase in total horsepower of steam engines (1860-1865) (N71) | GDP per capita (1930) (N13) |
| 1% increase in total horsepower of steam engines (N71) | GDP per capita (post-2000) (O49) |