Capital Deepening in United States Manufacturing, 1850-1880
Establishment-level data are used to study capital deepening – increases in the capital-output ratio – in U. S. manufacturing from 1850 to 1880. In both nominal and real terms, the aggregate capital-output ratio rose substantially over the period. Capital deepening is shown to be especially important in the larger firms and was associated with the diffusion of inanimate power. Although capital deepening implies a declining average product of capital, rates of return were not necessarily falling if capital’s share was increasing. However, there is strong evidence that returns did, in fact, decline.
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