Hostname: page-component-7c8c6479df-8mjnm Total loading time: 0 Render date: 2024-03-29T08:00:18.971Z Has data issue: false hasContentIssue false

Investment and growth in Europe during the Golden Age

Published online by Cambridge University Press:  01 August 2009

ANTONIO CUBEL
Affiliation:
Facultad de Economía, Universidad de Valencia, Campus dels Tarongers, Avda. dels Tarongers s/n 46022 Valencia, Spain, Antonio.cubel@uv.es, m.teresa.sanchis@uv.es
M. TERESA SANCHIS
Affiliation:
Facultad de Economía, Universidad de Valencia, Campus dels Tarongers, Avda. dels Tarongers s/n 46022 Valencia, Spain, Antonio.cubel@uv.es, m.teresa.sanchis@uv.es
Get access

Abstract

During the ‘Golden Age’, the high investment rates reached by the European countries have been considered crucial in explaining growth. The literature about the Golden Age has emphasized supply-side explanations based on structural change, the reconstruction effort and the catch-up hypothesis, but also demand-side explanations focused on the effects of demand stability for promoting high rates of investment. In this article we have focused our attention on the evolution of the user cost of capital for explaining the high rates of investment. Our hypothesis is that the increase in investment rates was propelled by the decline in the user cost of capital, the consequence largely of the drop in the relative price of machinery. The embodiment of new technology and the reductions in trade barriers explain this decrease in the relative price of machinery.

Type
Research Article
Copyright
Copyright © European Historical Economics Society 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abramovitz, M. (1986). Catching-up, forging ahead and falling behind. Journal of Economic History 36, pp. 385406.CrossRefGoogle Scholar
Acharya, R. and Keller, W. (2007). Technology transfers through imports. NBER Working Paper Series 13086. Cambridge MA: National Bureau of Economic Research.Google Scholar
Aitken, B. J. and Harrison, A. E. (1999). Do domestic firms benefit from foreign direct investment? Evidence for Venezuela. American Economic Review 89 (3), pp. 605–18.CrossRefGoogle Scholar
Alvarez Cuadrado, F. (2008). Growth outside the stable path: lessons from the European reconstruction. European Economic Review 52, pp. 568–88.CrossRefGoogle Scholar
Ark, B. van and Crafts, N. (eds.) (1996). Quantitative Aspects of Post-war European Economic Growth. Cambridge: Cambridge University Press.Google Scholar
Bakhshi, H., Oulton, N. and Thompson, J. (2003). Modelling investment when the relative prices are trending: theory and evidence for the United Kingdom. Bank of England Working Paper 189.CrossRefGoogle Scholar
Balassa, B. (1964). The purchasing power parity doctrine: a reappraisal. Journal of Political Economy 72 (6), pp. 584–96.CrossRefGoogle Scholar
Ben-David, D. (1993), Equalizing exchange: trade liberalization and income convergence. Quarterly Journal of Economics. August, pp. 653–79.CrossRefGoogle Scholar
Bhagwati, J. N. (1986). Why are services cheaper in poor countries? Economic Journal. June, pp. 279–86.Google Scholar
Boltho, A. (1982). Growth. In Boltho, A. (ed.), The European Economy: Growth and Crisis. Oxford: Oxford University Press.Google Scholar
Caballero, R. (1999) Aggregate investment. In Taylor, J. B. and Woodford, M. (eds.), Handbook of Macroeconomics. Amsterdam: North Holland.Google Scholar
Chirinko, R. S. (1993). Business fixed investment spending: modelling strategies, empirical results, and policy implications. Journal of Economic Literature 23, pp. 18751911.Google Scholar
Coe, D. T. and Helpman, E. (1995). International R&D spillovers. European Economic Review 39, pp. 859–87.CrossRefGoogle Scholar
Collins, W. J. and Williamson, J. G. (2001). Capital-goods prices and investment, 1870–1950. Journal of Economic History 61 (1), pp. 5994.CrossRefGoogle Scholar
Crafts, N and Mills, T. C. (1996). Europe's Golden Age: an econometric investigation of changing trends in rates of growth. In van Ark, B. and Crafts, N. F. R. (eds.), Quantitative Aspects of Post-war European Economic Growth. Cambridge: Cambridge University Press, pp. 415–31.Google Scholar
Crafts, N. and Toniolo, G. (1996). Economic Growth in Europe since 1945. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
David, P. (1990). The dynamo and the computer: an historical perspective on the modern productivity paradox. American Economic Review 80 (2), pp. 355–61.Google Scholar
De Long, J. B. (1992). Productivity and machinery investment, 1870–1980. Journal of Economic History 52, pp. 307–24.CrossRefGoogle Scholar
De Long, J. B. and Summers, L. H. (1991). Equipment investment and economic growth. Quarterly Journal of Economics, May, pp. 445–502.CrossRefGoogle Scholar
Denison, E. F. (1967). Why Growth Rates Differ. Washington, DC: Brookings Institution.Google Scholar
Dowrick, S. and Nguyen, D. T. (1989). OECD comparative economic growth 1950–1985: catch-up and convergence. American Economic Review 79 (5), pp. 1010–30.Google Scholar
Diaz-Alejandro, C. (1970). Essays on the Economic History of the Argentine Republic. New Haven, CT: Yale University Press.Google Scholar
Dumke, R. H. (1990). Reassessing the Wirstschaftswunder: reconstruction and postwar growth in West Germany in an international context. Oxford Bulletin of Economics and Statistics 52 (2), pp. 451–91.CrossRefGoogle Scholar
Easterly, W. (1993). How much distortions affect growth? Journal of Monetary Economics 32 (2), pp. 187212.CrossRefGoogle Scholar
Eaton, J. and Kortum, S. (2001). Trade in capital goods. European Economic Review 45, pp. 11951235.CrossRefGoogle Scholar
Eaton, J. and Kortum, S. (2002). Technology, geography and trade. Econometrica 70 (5), pp. 1741–79.CrossRefGoogle Scholar
Eichengreen, B. (1995). Mainsprings of economic recovery in post-war Europe. In Eichengreen, (ed.), Europe's Post-war Recovery. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Eichengreen, B. (1996). Institutions and economic growth: Europe after World War II. In Crafts, N. F. R. and Toniolo, G. (eds.), Economic Growth in Europe since 1945. Cambridge: Cambridge University Press.Google Scholar
Eichengreen, B. (2007). The European Economy since 1945: Coordinated Capitalism and Beyond. Princeton, NJ: Princeton University Press.Google Scholar
Fagerberg, J. (1994). Technology and international differences in growth rates. Journal of Economic Literature 32, pp. 1147–75.Google Scholar
Feenstra, R., Lipsey, R., Deng, H., Ma, A. and Mo, H. (2005). World trade flows: 1962–2000. NBER Working Paper 11040. Cambridge MA: National Bureau of Economic Research.Google Scholar
Fisher, J. D.M. (2005). The dynamic effects of neutral and investment-specific technology shocks. Federal Reserve Bank of Chicago Working Paper 2002–14.Google Scholar
Gilbert, M. and Kravis, I. B. (1954). An International Comparison of National Products and the Purchasing Power of Currencies: A Study of the United States, the United Kingdom, France, Germany and Italy. Paris: Organization for European Economic Cooperation.Google Scholar
Gordon, R. J. (1990). The Measurement of Durable Goods Prices. Chicago: University of Chicago Press.CrossRefGoogle Scholar
Greenwood, J., Hercowitz, Z. and Krusell, P. (1997). Long-run implications of investment specific technological change. American Economic Review 87 (3), pp. 342–62.Google Scholar
Greenwood, J. and Jovanovic, B. (1998). Accounting for growth. NBER Working Paper 6647. Cambridge MA: National Bureau of Economic Research.Google Scholar
Greenwood, J. and Yorukoglu, M. (1997). 1974. Carnegie-Rochester Conference Series on Public Policy 46, pp. 4995.CrossRefGoogle Scholar
Grossman, G. M. and Helpman, E. (1991). Innovation and Growth in the Global Economy, Cambridge, MA: MIT Press.Google Scholar
Helliwell, J. F. (1992). Trade and technical progress. NBER Working Paper 3948. Cambridge, MA: National Bureau of Economic Research.CrossRefGoogle Scholar
Heston, A., Summers, R. and Aten, B. (2006). Penn World Table Version 6.2. Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania.Google Scholar
Hall, R. E. and Jorgenson, D. W. (1967). Tax policy and investment behaviour. American Economic Review 57, pp. 391414.Google Scholar
Hulten, C. R. (1992). Growth accounting when technical change is embodied in capital. American Economic Review 82 (4), pp. 964–80.Google Scholar
Jánossy, F. (1969). The End of the Economic Miracle. White Plains, NY: ISAP.Google Scholar
Jones, C. (1994). Economic growth and the relative price of capital. Journal of Monetary Economics 34 (3), pp. 359–82.CrossRefGoogle Scholar
Jorgenson, D. W. (1963). Capital theory and investment behavior. American Economic Review 53 (2), pp. 247–59.Google Scholar
Keller, W. (2002). Geographic localization of international technology diffusion. American Economic Review 92 (1), pp. 120–42.CrossRefGoogle Scholar
Keller, W. (2004). International technology diffusion. Journal of Economic Literature 42, pp. 752–82.CrossRefGoogle Scholar
Kindleberger, C. (1967). Europe's Postwar Growth: The Role of Labor Supply. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
Kravis, I. B. and Lipsey, R. E. (1983). Toward an explanation of national price levels. Princeton Studies in International Finance 52, pp. 133.Google Scholar
Kravis, I. B., Heston, R. and Summers, A. (1982). World Product and Income: International Comparisons of Real Gross Product. Baltimore: Johns Hopkins University Press.Google Scholar
Lamfalussy, A. (1963). The United Kingdom and the Six. London: Macmillan.CrossRefGoogle Scholar
Lee, J-W. (1993). International trade, distortions and long-run economic growth. International Monetary Fund Staff Papers 40 (2), pp. 299328.CrossRefGoogle Scholar
Lee, J-W. (1995). Capital goods imports and long-run growth. Journal of Development Economics 48, pp. 91110.CrossRefGoogle Scholar
Levine, R. and Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. American Economic Review 82, pp. 942–63.Google Scholar
Maddison, A. (1987). Growth and slowdown in advanced capitalist economies. Journal of Economic Literature 25, pp. 649–98.Google Scholar
Maddison, A. (1991). Dynamic Forces in Capitalist Development. Oxford: Oxford University Press.Google Scholar
Maddison, A. (1995). Monitoring the World Economy, 1820–1992. Washington, DC: Organization for Economic Cooperation and Development.Google Scholar
Millward, R. (1984). The Reconstruction of Western Europe (1945–1952). London: Methuen.Google Scholar
Nelson, R. and Wright, G. (1992). The rise and fall of the American technological leadership. Journal of Economic Literature 30, pp. 1931–64.Google Scholar
Organization for Economic Cooperation and Development (several issues). Main Economic Indicators. Paris: OECD.Google Scholar
Organization for Economic Cooperation and Development (several issues). National Account Statistics. Paris: OECD.Google Scholar
Oliner, S., Rudebusch, G. and Sichel, D. (1995). New and old models of business investment: a comparison of forecasting performance. Journal of Money Credit and Banking 27, pp. 806–26.CrossRefGoogle Scholar
Olson, M. (1982). The Rise and Decline of Nations. New Haven, CT: Yale University Press.Google Scholar
O'Mahony, M. (1996). Measures of capital stocks in the post-war period: a five country study. In van Ark, B. and Crafts, N. (eds.), Quantitative Aspects of Post-war European Economic Growth. Cambridge: Cambridge University Press.Google Scholar
Restuccia, D. and Urrutia, C. (2001). Relative prices and investment rates. Journal of Monetary Economics 47, pp. 93121.CrossRefGoogle Scholar
Sachs, J. and Warner, A. M. (1997). Fundamental sources of long-run growth. American Economic Review 87 (2), pp. 184–8.Google Scholar
Smolny, W. (2000). Post-war growth, productivity convergence and reconstruction. Oxford Bulletin of Economic and Statistics 62 (5), pp. 589606.CrossRefGoogle Scholar
Summers, R. and Heston, A. (1991). The Penn World Table (mark 5): an expanded set of international comparisons, 1950–1988). Quarterly Journal of Economics 106, pp. 327–68.CrossRefGoogle Scholar
Taylor, A. (1992). External dependence, demographic burdens and Argentine economic decline after the belle époque. Journal of Economic History 52 (4), pp. 907–36.CrossRefGoogle Scholar
Taylor, A. (1998). On the cost of inward looking development: price distortion, growth and divergence in Latin America. Journal of Economic History 58 (1), pp. 128.CrossRefGoogle Scholar
Temin, P (1997). The Golden Age of European growth: a review essay. European Review of Economic History 2, pp. 127–49.CrossRefGoogle Scholar
Temin, P. (2002). The Golden Age of European growth reconsidered. European Review of Economic History 7, pp. 322.CrossRefGoogle Scholar
Tevlin, S. and Whelan, K. (2003). Explaining the investment boom of the 1990s. Journal of Money, Credit and Banking 35 (1), pp. 122.CrossRefGoogle Scholar
Thirwall, A. P. (1979). The balance of payments constraint as an explanation of international growth rate differences. Banca Nazionale del Lavoro Quarterly Review 128, pp. 4453.Google Scholar
Toniolo, G. (1998). Europe's Golden Age, 1950–1973: speculations from a long run perspective. The Economic History Review 51 (2), pp. 252–67.CrossRefGoogle Scholar
United Nations (several issues). Yearbook of International Trade Statistics, vol. I.Google Scholar
United Nations (1987). World Comparisons of Purchasing Power and Real Product for 1980. Phase IV of the International Comparisons Project. New York.Google Scholar
United Nations and the Commission of the European Communities (1994). World Comparisons of Real Gross Domestic Product and Purchasing Power, 1985. Phase V of the International Comparison Programme. New York.Google Scholar
United Nations, Statistics division, UN Comtrade Database.Google Scholar
Verspagen, B. (1996). Technology indicators and economic growth in the European area: some empirical evidence. In Van Ark, B. and Crafts, N. (eds.), Quantitative Aspects of Post-war European Economic Growth. Cambridge: Cambridge University Press.Google Scholar
Vonyó, T. (2008). Post-war reconstruction and the Golden Age of economic growth. European Review of Economic History 12, pp. 222–41.CrossRefGoogle Scholar