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Necessity Is the Mother of Invention: Input Supplies and Directed Technical Change

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  • W. Walker Hanlon

Abstract

This study provides causal evidence that a shock to the relative supply of inputs to production can (1) affect the direction of technological progress and (2) lead to a rebound in the relative price of the input that became relatively more abundant (the strong induced‐bias hypothesis). I exploit the impact of the U.S. Civil War on the British cotton textile industry, which reduced supplies of cotton from the Southern United States, forcing British producers to shift to lower‐quality Indian cotton. Using detailed new data, I show that this shift induced the development of new technologies that augmented Indian cotton. As these new technologies became available, I show that the relative price of Indian/U.S. cotton rebounded to its pre‐war level, despite the increased relative supply of Indian cotton. This is the first paper to establish both of these patterns empirically, lending support to the two key predictions of leading directed technical change theories.

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  • W. Walker Hanlon, 2015. "Necessity Is the Mother of Invention: Input Supplies and Directed Technical Change," Econometrica, Econometric Society, vol. 83, pages 67-100, January.
  • Handle: RePEc:wly:emetrp:v:83:y:2015:i::p:67-100
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    1. Random thoughts on critiques of Allen’s theory of the Industrial Revolution
      by pseudoerasmus in Pseudoerasmus on 2016-12-02 02:35:02

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    Cited by:

    1. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
    2. W. Walker Hanlon, 2014. "Temporary Shocks and Persistent Effects in the Urban System: Evidence from British Cities after the U.S. Civil War," NBER Working Papers 20471, National Bureau of Economic Research, Inc.
    3. Morgan Kelly & Joel Mokyr & Cormac Ó Gráda, 2014. "Precocious Albion: A New Interpretation of the British Industrial Revolution," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 363-389, August.
    4. Clemens, Michael A. & Lewis, Ethan Gatewood & Postel, Hannah M., 2017. "Immigration Restrictions as Active Labor Market Policy: Evidence from the Mexican Bracero Exclusion," IZA Discussion Papers 10512, Institute for the Study of Labor (IZA).
    5. Réka Juhász, 2014. "Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade," CEP Discussion Papers dp1322, Centre for Economic Performance, LSE.
    6. Matthew Gibbons & Les Oxley, 2017. "The Relationship of Patenting Applications and Expenditure with Output and Real GDP in Nineteenth Century Colonial New Zealand," Working Papers in Economics 17/05, University of Waikato.
    7. Vladimir Matveenko & Shamil Sharapudinov, 2016. "Factor-Biased Technological Change and the Skill Premium: A Cross-Country Evidence," EUSP Department of Economics Working Paper Series Ec-05/16, European University at St. Petersburg, Department of Economics.
    8. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    9. Clymo, AJ, 2017. "Heterogeneous Firms, Wages, and the Effects of Financial Crises," Economics Discussion Papers 20572, University of Essex, Department of Economics.
    10. Juhász, Réka, 2014. "Temporary protection and technology adoption: evidence from the Napoleonic blockade," LSE Research Online Documents on Economics 60697, London School of Economics and Political Science, LSE Library.
    11. Arnaud Dupuy & Todd Sorensen, 2014. "On Input Market Frictions and Estimation of Factors' Demand," Southern Economic Journal, Southern Economic Association, vol. 80(3), pages 772-781, January.
    12. zhibo Tan & Xiaobo Zhang, 2016. "Does Female Labor Scarcity Encourage Innovation? Evidence from China’s Gender Imbalance," Working Papers id:11039, eSocialSciences.
    13. Vellore Arthi & Brian Beach & W. Walker Hanlon, 2017. "Estimating the Recession-Mortality Relationship when Migration Matters," NBER Working Papers 23507, National Bureau of Economic Research, Inc.
    14. Tan, Zhibo & Zhang, Xiaobo, 2016. "Does female labor scarcity encourage innovation?: Evidence from China’s gender imbalance:," IFPRI discussion papers 1540, International Food Policy Research Institute (IFPRI).
    15. Caprettini, Bruno & Voth, Hans-Joachim, 2017. "Rage Against the Machines: Labour-Saving Technology and Unrest in England, 1830-32," CEPR Discussion Papers 11800, C.E.P.R. Discussion Papers.
    16. Ran Abramitzky, 2015. "Economics and the Modern Economic Historian," NBER Working Papers 21636, National Bureau of Economic Research, Inc.

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