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The American System of economic growth

Author

Listed:
  • Marvin Goodfriend

    (Carnegie Mellon University)

  • John McDermott

    (University of South Carolina)

Abstract

The early history of industrialization in the United States—famously known as “The American System of Manufactures”—exhibited four key features: the substitution of specialized intermediate inputs for skilled work in assembling final goods, the freedom with which knowledge has long been shared in the United States, a learning technology that leverages existing mechanical know-how in human capital accumulation, and increasing returns to intermediate inputs in processing final goods. Our endogenous growth model embodies these components and utilizes historical time series data on labor force “operatives” and the Census of Manufactures to calibrate the model’s parameters. Our simulation closely matches the 1.88% average per capita product growth in the United States from 1860 to date. The simulation predicts that growth will peak in 1980 and ultimately converge to 1.31%—a growth slowdown rooted from the beginning in the economization of skilled labor inherent in the American System. By 2000, simulated per capita product is 2.21 times larger than a counterfactual in which the American System of manufactures never existed.

Suggested Citation

  • Marvin Goodfriend & John McDermott, 2021. "The American System of economic growth," Journal of Economic Growth, Springer, vol. 26(1), pages 31-75, March.
  • Handle: RePEc:kap:jecgro:v:26:y:2021:i:1:d:10.1007_s10887-021-09186-x
    DOI: 10.1007/s10887-021-09186-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic growth; American System of manufactures; Human capital; Increasing returns to scale;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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