The Journal of Economic History

Table of Contents - December 2011 - Volume 71, Issue 04  

ARTICLES

Did Technology Shocks Drive the Great Depression? Explaining Cyclical Productivity Movements in U.S. Manufacturing, 1919–1939

ROBERT INKLAARa1, HERMAN DE JONGa2 and REITZE GOUMAa3

a1 Assistant Professor, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands. E-mails: r.c.inklaar@rug.nl.

a2 Assistant Professor, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands. E-mails: h.j.de.jong@rug.nl.

a3 Research Assistant, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands. E-mails: f.r.gouma@rug.nl.

Abstract

Technology shocks and declining productivity have been advanced as important factors driving the Great Depression in the United States, based on real business cycle theory. We estimate an improved measure of technology for interwar manufacturing, using data from the U.S. census reports. There is clear evidence of increasing returns to scale and we find no statistical proof that technology shocks led to changes in hours worked or other inputs. This contradicts a key prediction of real business cycle theory. We find that increasing returns to scale are not due to market power but to labor and capital hoarding.

Footnotes

The authors are members of the Groningen Growth and Development Centre (GGDC) at the Faculty of Economics and Business, University of Groningen. Herman de Jongs research was supported by a grant from the Netherlands Organisation for Scientific Research (NWO Grant no. 360-53-100). The authors are very grateful to the anonymous readers and the editor for their thoughtful comments and suggestions, which improved the article greatly. We wish to thank participants at the conference of the European Historical Economics Society in Geneva (2009) and seminar participants at the University of Groningen and the Netherlands Bureau for Economic Policy Analysis (CPB) for useful comments on earlier drafts of the article.