Malthus to Solow

Gary Hansen and Edward Prescott

No 257, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. We use a standard growth model with one good and two available technologies. The first, denoted the Malthus technology, requires land, labor, and reproducible capital as inputs. The second, denoted the Solow technology, does not require land. We show that in the early stages of development, only the Malthus technology is used, and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable, and both technologies are employed. In the limit, the economy behaves like a standard Solow growth model.

Keywords: Economic; development (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Malthus to Solow (2002)
Working Paper: Malthus to Solow (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:257

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