G. Foreign trade. On the eve of the I.R. Britain was a relatively open economy. Exports and imports represented large shared of their economy. Some argued that trade was key to British growth:Topic 9: The First Industrial RevolutionI. The Growing Up of The EconomyProductivity in particular increased dramatically but aggregate rates did not increase until the 1830s.A. Productivity estimates in innovating industries.McCloskey (1985) calculates crude estimates of average annual productivity changes by subtracting the rate of growth of price from the rate of growth of input prices.1780-1860Cotton 2.6%Worsted 1.8 Woolens 0.9Iron 0.9Agriculture 0.45What do these figures mean? A piece of cotton cloth that sold for 40 shillings in the 1780s cost only 5 shillings in the 1850s.B. Aggregate Growth FiguresEstimated Annual Rates of British Growth.National IncIndust. Prod.1700-1760 0.30% 0.62%1760-1800 0.17 1.961800-1830 0.52 3.001830-1870 1.98 3.20Why did it take so long for changes to affect aggregate growth rates? Because changes were affecting only a small sector of the economy.C. Dual economy model. 1. Economy with 2 sectors.a. One sector is the traditional sector developing gradually along conventional lines with slowly growing productivity andslowing rising capital-labor ratios. This sector contained agriculture, construction, domestic industry and many trades.b. The other sector is the modern sector. This sector consists of the Innovative and fast-growingindustries: cotton textiles, iron smelting and refining, mining and ceramics.c. The traditional sector was large. Estimates suggest it was close to 90% of the British economy in 1760.d. Modern Sector was relatively small. Only about 10%.2. Differential productivity growth.a. Sluggish growth in traditional sector, productivity growth averaged only .6% per annum.3. High productivity growth in modernsector, Phenomenal modern--1.8% per annum. Since it only represented a small share of the aggregate economic activity, it hadlittle impact on the aggregate growth rate. Abrupt changes in the growth of the aggregate economy in this dual sector model would bea mathematical impossibility. The small size of the modern sector means that even phenomenal growth rate are prevented from having a large total impact. 4. Mathematical example (see Excel worksheet): Suppose the growth rate in the modern sector was 4% and the growth rate in the traditional sector was 1%. We will keep with the initial 90-10 split actually observed in Britain the time, then the overall growth rate would be:.9*1+.1*4=1.3% So even though the modern sector would grow very rapidly, the overall growth rate of the economyis substantially lower. Over time, the modern sector increases its share of the economy (b/c it is growing so much faster), but only slowly.It would take almost 30 years for the modern sector to increase to20% of the economy (see worksheet)And even then the growth rate of the aggregate economy would by 1.6%..8*1+.2*4=1.6% D. The “growing up” of the economy. Using the dual sector model as a guide,Joel Mokyr has summarized the Industrial Revolution as a 3-pronged economic change.1. A small sector of the economy underwent quite rapid and dramatic technological change.2. This sector grew at a rate much faster than the traditional sector sothat its share of the overall economy increased.3. The technological changes in the modern sector gradually penetrated the traditional sector sothat it too became modernized (e.g., mechanization of agriculture, domestic industry, etc.).II. The Causes of the Industrial Revolution or Why Britain?Necessary condition is A is necessary for B.Sufficient condition is A is sufficient for B, if A then B.In history however, we cannot identify these, instead we have to settle for correlations and factors that we believe increased the probability that an event would occur.A. Geography1. Islanda. Difficult to invade.Britain has not had a land invasion since 1066. It was insulated from the fighting during the Napoleonic wars 1792-1814. So it did not have the financial drain of defendingits borders as did continental European nations.b. Internal transportation. Coastal shipping could be used to transport goods around Britain, led to more integrated markets than in other Europeannations.2. Mineral resource endowment. Britain was endowed with rich supplies of coal and iron which were important inputs in Britain’s innovating industries.However, there are some weaknesses with arguing that natural resource endowment was the determinant of growth.a. Iron and coal were traded commodities. In the 1790s Britain imported 852k Ibs. of iron ore from Sweden. b. The key input in the cotton textile industry – raw cotton – was imported.However, resources endowments likely directed Britain’s development. Remember the Newcomen steam pump which led to the steam engine developed to pump water out of coal in iron production, led to innovation in the iron industry.B. Technological Creativity. Were the British more creative than other peoples? Actually, the record shows that Britain imported many macro inventions.Macro inventions: major breakthroughs; new concepts; big steps forward.Micro inventions: incremental improvements in existing techniques.Britain imported many macro inventions from France: Jaquard looms,chlorine bleaching, food canning. The secret of their success was in microinventing. The Brits were good at adapting and improving technology. Why? Britain was not a leader in scientific research nor did it have an extremely efficient education system. Most of its mechanics and engineers were trained through the apprentice system.1. Pre-Industrial Revolution industries.Industries structure gave Britain a supply of highly skilled mechanics and engineers. Before 1760,Britain specialed in clock- and -instrument making, shipbuilding, iron-making, printing, wool finishing, and mining, all industries requiring a high level of technical skills. The clock- and -instrument makers were skilled with making and repairing items with complicated gears and precise specifications. These men had the skills necessary to build and design the powered machinery that revolutionized Britain’s industries.2. “Provincial Scientific Culture.” There were dozens of scientific journals and scientific societies in Britain. Lecturers on the principles of mechanics traveled around the country and gave talks to packed houses. Brits