Human Capital, Dynamic Preference and Endogenous Transition form Primitive Agriculture to Industrial Mass Production: Three Stages of Economic Development

Rudrani Bhattacharya, Planning Unit, Indian Statistical Institute

This paper develops an endogenous growth model that captures the historical evolution of preferences, knowledge, technology and output. It develops a human capital led growth model that generates endogenous transition between three regimes that have characterized economic development. The economy evolves from an agricultural to traditional manufacturing and then finally to highly automated mass-production stage characterized by increasing returns technology. The model essentially captures the ”pull” view of origins of industrial take off that focuses on the development of new production opportunities in the industrial sector. These new production opportunities evolve because of changing preference pattern with the introduction of new goods. The economy, starting from an agrarian society, consuming and producing only agricultural good is able to take off to a primitive industrial state with sufficiently accumulated human capital followed by a shift in the preferences towards new industrial goods serving fairly new purposes. Again when the knowledge base of the economy becomes strong enough to be embodied into highly automated, standardized, synchronized and continuous technique of production, it enters the stage of mass production (characterized by increasing returns technology) of varieties of new goods that expand the preference set of people. This paper essentially tries to describe the experience of world economy over the last two hundred years when countries experienced rapid growth in living standards by taking advantage of the scale economies in the production of manufacturing.

Venue: Keizer Karelplein 19, Maastricht

Date: 15 February 2007

Time: 16:00  CET