Annual EBHS Conference, 39th Annual Economic and Business History Society Conference

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Factor Shares, Economic Growth, and the Industrial Revolution
Daniel Giedeman, Bradley Sturgill

Last modified: 2014-03-10

Abstract


Despite the introduction of many famous inventions, growth in the total factor productivity (TFP) residual during the British industrial revolution is typically estimated to have been relatively slow.  Virtually all growth accounting studies pertaining to the British industrial revolution assume that factor shares were constant parameters. The data indicate that factor shares were not constant.  Labor and land shares decreased during the period while physical capital’s share increased.  There is no theoretical reason to limit the manifestation of technical progress to changes in the TFP parameter that augments capital, labor or both in standard production functions.  If technical progress alters factor shares then the TFP residual can be an inaccurate indicator of technical progress. This paper presents a simple model of share-altering technical progress and provides a growth accounting methodology that allows for variable factor shares.