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. 2021;26(1):31-75.
doi: 10.1007/s10887-021-09186-x. Epub 2021 Feb 24.

The American System of economic growth

Marvin Goodfriend  1 , John McDermott  2
Affiliations

The American System of economic growth

Marvin Goodfriend et al. J Econ Growth (Boston). 2021.

Abstract

The early history of industrialization in the United States-famously known as "The American System of Manufactures"-exhibited four key features: the substitution of specialized intermediate inputs for skilled work in assembling final goods, the freedom with which knowledge has long been shared in the United States, a learning technology that leverages existing mechanical know-how in human capital accumulation, and increasing returns to intermediate inputs in processing final goods. Our endogenous growth model embodies these components and utilizes historical time series data on labor force "operatives" and the Census of Manufactures to calibrate the model's parameters. Our simulation closely matches the 1.88% average per capita product growth in the United States from 1860 to date. The simulation predicts that growth will peak in 1980 and ultimately converge to 1.31%-a growth slowdown rooted from the beginning in the economization of skilled labor inherent in the American System. By 2000, simulated per capita product is 2.21 times larger than a counterfactual in which the American System of manufactures never existed.

Keywords: American System of manufactures; Economic growth; Human capital; Increasing returns to scale.

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Figures

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Fig. 1
Effort allocation as a percentage of the fixed total
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Momentary equilibrium in the labor market
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Perpetual growth in h
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Per capita GDP in the US and Great Britain, 1860–2016 (Natural Logarithm)
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U.S. growth rates and the simulated growth path
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Simulated effort allocations
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Simulated growth of conventional and advanced sector per capita product
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Simulated, history, and counterfactual
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Alternate calibrations
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Monopolistically competitive equilibrium
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Fig. 11
Region and grid (Color figure online)
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Fig. 12
Growth regimes in A,k space
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