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Why, indeed, in America? Theory, History, and the Origins of Modern Economic Growth

  • Paul M. Romer

When they are used together, economic history and new growth theory give a more complete picture of technological change than either can give on its own. An empirical strategy for studying growth that does not use historical evidence is likely to degenerate into sterile model testing exercises. Historical analysis that uses the wrong kind of theory or no theory may not emphasize the lessons about technology that generalize. The complementarity between these fields is illustrated by an analysis of early industrialization. The key theoretical observation is that larger markets and larger stocks of resources create substantially bigger incentives for discovering new ways to use the resources. This simple insight helps explain why the techniques of mass production emerged in the United States during the first half of the 19th century. It also helps explain how a narrow advantage in the techniques of mass production for a small set of goods grew into broad position of industrial supremacy by the middle of the 20th century.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5443.

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Date of creation: Jan 1996
Date of revision:
Publication status: published as American Economic Review, Vol. 86, no. 2 (May 1996): 202-206.
Handle: RePEc:nbr:nberwo:5443
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  1. N. Gregory Mankiw, 1995. "The Growth of Nations," Harvard Institute of Economic Research Working Papers 1732, Harvard - Institute of Economic Research.
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