The Industrial Revolution Past and Future

Transcription

1 Guanghua Macro Reading Group The Industrial Revolution Past and Future Robert E. Lucas, Jr. Presented by Chen Xiaoguang Department of Applied Economics, Guanghua School of Management, Peking University 11 / 14

2 1 Before 1800, per capital income is approximately constant. Modern sustained economic growth began around The industrial revolution is associated with the reductin in fertility known as the demographic transition 12 / 14

3 2 Becker, Murphy, and Tamura. 1990, Human Capital, Fertility and Economic Growht. Journal of Political Economy. This paper provides a good framework to discuss the demographic transition because it incorporates the quantity-quality trade-off into the model. But Land is not a factor of production. Hansen and Prescott, 2002, Malthus to Solow, American Economic Review. This paper offers an alternative description of a transition from a Malthusian economy to a perpetually growing one. There is no quantity-quality trade-off and the demography in this model is entirely passive. 13 / 14

4 Both BMT (1990) and HP (2002) address the industrial revolution with a single endogenous state variable, human capital per person in the case of BMT and land per person in the case of HP. Lucas attempts to merge the two approaches and discover a more general theory. 14 / 14

5 3 Dynastic preference u t = W(c t,n t,u t+1 ) 15 / Hunter-Gather Society max {nt } W( f (x t ),n t,u t+1 ) and x t+1 = x t /n t. We have an unique stable steady state c m, x m and n = Egalitarian economy with property right v(x) = max {n} W( f (x),n,u(x/n)) We also have an unique stable steady state c e and x e, which satisfy c e > c m and x e > x m.

6 establishing property right in land gives each family the incentive to reduce fertility and thus increase the living standard of each family. 3. Two-class (worker-landowner) economy: just the combination of hunter-gather society and the economy with property right. Conclusion: The steady state income of a worker is determined independently of the technology or of the levels of population and resources. It depends only on the goods cost of raising children and on parental attitudes toward children and child raising. 4. Incorporating capital accumulation (a) Household s resource constraint c + (k + y)n f (x,z) + z 16 / 14

7 (b) Bellman equation v(x,z) = max {c,n,y} W(c,n,v(x/n,y)) Conclusion: Incorporating capital accumulation just replicates the results for the land-only economy. Technology level does not affect the steady state per capita consumption but induce increases in population only. 5. Fertility and sustained growth From the various models introduced above we can see that adding a fertility decision to the theory with land and capital input dose not provide an engine of growth. This motivates Lucas to incorporate fertility decision into the growth model with human capital accumulation. 17 / 14

8 (a) A model with exogenous human capital growth Household s Bellman equation v(h) = max {c,n} W(h(1 kn),n,v(γh)) We can get the sustained growth with constant population growth rate. But the rate of technological change does not affect the fertility and the demographic transition is still missing. 18 / 14

9 (b) a model with endogenous human capital growth Household s Bellman equation v(h) = max {c,n,r} W(h(1 (k+r)n),n,v(φ(r)h)) In this case, improvement in technology leads to a permanent reduction in fertility. This example shows that to explain the observed behavior of fertility during a demographic transition, one needs to assign an important role to endogenous human capital accumulation, motivated by the private rate of return to this activity. 19 / 14

10 A demographic and industrial transition Technology F(x,h,l) = max θ Bellman equation [Ax α θ 1 α + Bh(l θ)] v(x,h) = max {c,n,r} W(c,n,v(x/n,hφ(r))) where c = F(x,h,1 rn) kn. Two possibilities for the long run behavior 1. Malthusian steady state: constant population and income level 2. Sustained long run growth; increasing population and income level 110 / 14

11 Self-fulfilling prospect or technological shock might be the causes for the transition from one state to another. Even Lucas himself admits that the idea is not so convincing. 111 / 14

12 4 Delve into the problem step by step. Master Genius: Trial and error approach is adopted. Think in model. Lucas, successful or unsuccessful? 112 / 14

13 5 The underlying forces for the transitional dynamics? Hansen and Prescott (2002), Galor and Weil (2000). 113 / 14 Calibrate the model to match the real economy. Needham puzzle: why industrial revolution first took place in Europe instead of China?

14 114 / 14 Thanks!