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Malthus to Solow

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  • Gary D. Hansen
  • Edward C. Prescott

Abstract

A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. We use a standard growth model with one good and two available technologies. The first, denoted the Malthus technology, requires land, labor, and reproducible capital as inputs. The second, denoted the Solow technology, does not require land. We show that in the early stages of development, only the Malthus technology is used, and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable, and both technologies are employed. In the limit, the economy behaves like a standard Solow growth model.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 257.

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Date of creation: 1999
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Handle: RePEc:fip:fedmsr:257

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Keywords: Economic development;

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 323-350 National Bureau of Economic Research, Inc.
  3. Jones Charles I., 2001. "Was an Industrial Revolution Inevitable? Economic Growth Over the Very Long Run," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(2), pages 1-45, August.
  4. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
  5. Marvin Goodfriend & John McDermott, 1994. "Early development," Working Paper 94-02, Federal Reserve Bank of Richmond.
  6. Galor, Oded & Weil, David, 1995. "The Gender Gap, Fertility and Growth," CEPR Discussion Papers 1157, C.E.P.R. Discussion Papers.
  7. Rosenzweig, Mark R & Evenson, Robert E, 1977. "Fertility, Schooling, and the Economic Contribution of Children in Rural India: An Econometric Analysis," Econometrica, Econometric Society, vol. 45(5), pages 1065-79, July.
  8. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
  9. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  10. Karine S. Moe, 1998. "Fertility, Time Use, and Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 699-718, July.
  11. Arifovic, Jasmina & Bullard, James & Duffy, John, 1997. " The Transition from Stagnation to Growth: An Adaptive Learning Approach," Journal of Economic Growth, Springer, vol. 2(2), pages 185-209, July.
  12. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240 National Bureau of Economic Research, Inc.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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  1. How much inequality would Plato tolerate?
    by YouNotSneaky! in YouNotSneaky on 2007-05-15 01:59:00
  2. Unified Growth Theory
    by ? in Graduate Economist on 2012-04-19 12:00:00
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