Capital Deepening in American Manufacturing, 1850-1880

Jeremy Atack, Fred Bateman and Robert Andrew Margo

No 9923, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use establishment-level data to study capital deepening -- increases in the capital-output ratio -- in American manufacturing from 1850 to 1880. In nominal terms, the aggregate capital-output ratio in our samples rose by 30 percent from 1850 to 1880. Growth in real terms was considerably greater -- 70 percent -- because prices of capital goods declined relative to output prices. Cross-sectional regressions suggest that capital deepening was especially importnat in the larger firms and was positively associated with the diffusion of steam-powered machinery. However, even after accounting for shifts over time in such factors, much of the capital deepening remains to be explained. Although capital deepening implies a fall in the average product of capital it does not necessarily imply that rates of return were declining. However, we find strong evidence that returns did decline. We also show that returns were decreasing in firm size, although the data are not sufficiently informative to tell us why it was so.

JEL-codes: N61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his
Date: 2003-08
Note: DAE
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