Historical Perspectives on Economic Growth
2. When did economic growth start?
How developed is the world today?
When did the world’s economy start to grow?
We aim to understand:
• Which factors cause economic development
• How much they a ect it
• How much of the overall di erences in development can be explained by each factor
The UK started to grow in 1650, becoming one of the rst countries in the world to grow. Prior to
1650, there were periods of economic growth, however, they were not sustained, and other
periods eradicated the gains in per capita income. Since 1800, economic growth has become
common.
Key concepts:
• Malthusian epoch
3. The fundamental causes of economic development
Which fundamental factors a ect economic development?
Factors of production:
• Land (S)
• Physical capital (K)
• Labour (L)
• (Human capital)
An individual’s wellbeing depends on how much of the factors of production they are endowed
with, and how e ciently they use them - total factor productivity.
First nature/topological geography:
• How well is your island endowed with land to begin with?
Endowments:
• Physical capital
• What could you rescue from the ship?
• What can you nd on the island?
• Can you collect wood (employing S and L) or chop trees (employing K, L and S) to invest in
your capital stock?
• Physical capital can accumulate, but it also decays or becomes obsolete through better
technology
• Labour
• If by yourself (island example), procreation is not possible
• Could tame animals
• With a second person added, a trade-o is created
• They could steal from you
• But they add to the labour supply
• Could create institutions (with rules)
Second nature geography: what if you make changes to the geography?
Institutions:
• Formal, e.g. constitutions, contracts, government
• Informal, e.g. traditions, customs, moral values, religious beliefs
fi ffiff ff ff f fi
, The fundamental causes of economic development after Rodrik, Subramanian and Trebbi (2004)
Why was Britain rst?
• Endowments
• Land
• First nature geography, e.g. mild climate, coasts
• Second nature geography, e.g. rich neighbours
• Physical capital
• Labour
• More people
• Human capital
• Institutions
• Formal, e.g. Magna Carta, parliament
• Informal, e.g. norms, culture
Key concepts:
• Production factors
• First nature geography
• Second nature geography
• Institutions
4. The World in the Malthusian Trap
Why was there no growth before around 1650?
What explains income di erences before stable economic growth?
The ‘Hockey Stick’
fi ff
,Before 1730:
• Basically no growth in per capita income despite great technological advances
• Humans were living at some ‘subsistence level’ Clark (2008) - not starving but unable to
accumulate lots of wealth
Malthus basic principles:
• Diminishing returns to labour
• Birth rate is either independent of wealth (socially determined) or positively correlated with
wealth
• Death rate is negatively correlated with wealth
The Malthusian Trap, Clark (2008, p.22)
The Malthusian Trap:
• If a population has some per capita income y0 that is larger than subsistence income y*,
population will increase until per capita income is reduced to y*
• If a population has some per capita income below subsistence y*, death rate will exceed birth
rate and population is reduced until income reaches subsistence y*
Determinants of the position of the birth rate line:
• If birth rate is independent of wealth, the line is at
• Social/cultural factors
• ‘European marriage pattern’ - Europeans marry late and many women do not marry at all
• If parents save more per birth, e.g. because wealth is a precondition for marriage
• Quality-quantity-trade-o - parents trade-o the number of children and how much time and
money they wish to invest
f ff fl
, Changes in birth rate
Changes in birth rate:
• Any increase from birth rate0 to birth rate1 at any per capita income y0* leads to a new
equilibrium
• Population grows larger (N*0 > N*1), but per capita income is smaller than before (y*0 < y*1)
Determinants of the position of the death rate line:
• Diseases, e.g. Black Death
• General hygiene
• Infanticide
• Wars
• Good will
Changes in death rate
2. When did economic growth start?
How developed is the world today?
When did the world’s economy start to grow?
We aim to understand:
• Which factors cause economic development
• How much they a ect it
• How much of the overall di erences in development can be explained by each factor
The UK started to grow in 1650, becoming one of the rst countries in the world to grow. Prior to
1650, there were periods of economic growth, however, they were not sustained, and other
periods eradicated the gains in per capita income. Since 1800, economic growth has become
common.
Key concepts:
• Malthusian epoch
3. The fundamental causes of economic development
Which fundamental factors a ect economic development?
Factors of production:
• Land (S)
• Physical capital (K)
• Labour (L)
• (Human capital)
An individual’s wellbeing depends on how much of the factors of production they are endowed
with, and how e ciently they use them - total factor productivity.
First nature/topological geography:
• How well is your island endowed with land to begin with?
Endowments:
• Physical capital
• What could you rescue from the ship?
• What can you nd on the island?
• Can you collect wood (employing S and L) or chop trees (employing K, L and S) to invest in
your capital stock?
• Physical capital can accumulate, but it also decays or becomes obsolete through better
technology
• Labour
• If by yourself (island example), procreation is not possible
• Could tame animals
• With a second person added, a trade-o is created
• They could steal from you
• But they add to the labour supply
• Could create institutions (with rules)
Second nature geography: what if you make changes to the geography?
Institutions:
• Formal, e.g. constitutions, contracts, government
• Informal, e.g. traditions, customs, moral values, religious beliefs
fi ffiff ff ff f fi
, The fundamental causes of economic development after Rodrik, Subramanian and Trebbi (2004)
Why was Britain rst?
• Endowments
• Land
• First nature geography, e.g. mild climate, coasts
• Second nature geography, e.g. rich neighbours
• Physical capital
• Labour
• More people
• Human capital
• Institutions
• Formal, e.g. Magna Carta, parliament
• Informal, e.g. norms, culture
Key concepts:
• Production factors
• First nature geography
• Second nature geography
• Institutions
4. The World in the Malthusian Trap
Why was there no growth before around 1650?
What explains income di erences before stable economic growth?
The ‘Hockey Stick’
fi ff
,Before 1730:
• Basically no growth in per capita income despite great technological advances
• Humans were living at some ‘subsistence level’ Clark (2008) - not starving but unable to
accumulate lots of wealth
Malthus basic principles:
• Diminishing returns to labour
• Birth rate is either independent of wealth (socially determined) or positively correlated with
wealth
• Death rate is negatively correlated with wealth
The Malthusian Trap, Clark (2008, p.22)
The Malthusian Trap:
• If a population has some per capita income y0 that is larger than subsistence income y*,
population will increase until per capita income is reduced to y*
• If a population has some per capita income below subsistence y*, death rate will exceed birth
rate and population is reduced until income reaches subsistence y*
Determinants of the position of the birth rate line:
• If birth rate is independent of wealth, the line is at
• Social/cultural factors
• ‘European marriage pattern’ - Europeans marry late and many women do not marry at all
• If parents save more per birth, e.g. because wealth is a precondition for marriage
• Quality-quantity-trade-o - parents trade-o the number of children and how much time and
money they wish to invest
f ff fl
, Changes in birth rate
Changes in birth rate:
• Any increase from birth rate0 to birth rate1 at any per capita income y0* leads to a new
equilibrium
• Population grows larger (N*0 > N*1), but per capita income is smaller than before (y*0 < y*1)
Determinants of the position of the death rate line:
• Diseases, e.g. Black Death
• General hygiene
• Infanticide
• Wars
• Good will
Changes in death rate
