We develop a theory to explain the transition from stagnation to modern growth. We focus on the forces that shaped the evolution of total factor productivity in agriculture and manufacturing across history. More specifically, we build a multisector model of endogenous technical-change and economic growth. We consider an expanding-variety setup with rising labor specialization and two different R&D technologies, one for agriculture and another for manufacturing. As a consequence, total factor productivity in the model can increase via two different channels. First, population growth allows larger levels of specialization of land and labor in the economy that bring efficiency gains. This type of productivity improvement is capital saving, but can not generate sustained growth. Technical change is also possible by investing in R&D. Unlike specialization, new technologies generated in this way are land and labor augmenting, and are the key to modern growth. In the model, the economy has not incentives to invest in R&D until a minimum knowledge base is available to researchers. This is in line with ideas contained in Mokyr (2005). To make possible the accumulation of this minimum knowledge base, we assume that learning-by-doing is the implicit underlying force that leads to specialization. However, land and labor specialization is based on knowledge whose nature differs in agriculture and in manufacturing. More specifically, whereas this knowledge is farm-specific in agriculture, mainly concern with the acquisition of uncodified information about local conditions of soil and whether, specialization in manufacturing is the result of general knowledge, mainly codified, that contributes at a larger extent to the knowledge base.
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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number
c011_005.
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