Working Paper: NBER ID: w9923
Authors: Jeremy Atack; Fred Bateman; Robert A. Margo
Abstract: 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.
Keywords: No keywords provided
JEL Codes: N61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital deepening (E22) | establishment size (L25) |
| establishment size (L25) | capital-output ratios (E23) |
| capital deepening (E22) | returns to capital (E22) |
| establishment size (L25) | returns to capital (E22) |
| diffusion of steam power (L94) | capital deepening (E22) |