GLOBAL INCOME DIVERGENCE, TRADE AND INDUSTRIALIZATION: Relation to early, recent literature

GLOBAL INCOME DIVERGENCE, TRADE AND INDUSTRIALIZATION: Relation to early, recent literatureOur model captures some elements of the informal analyses of the classic growth scholars such as Kuznets and Rostow\ Despite their disagreements on important points, both think of the Industrial Revolution as a structural break. Kuznets divides growth into two types: traditional growth (pre-1750) and modern economic growth (post-1750). The distinctive feature of modern growth, according to Kuznets, is the rapidity of the shifts in industrial structure (he talks of sweeping structural changes) and their magnitude when cumulated over decades. Rostow goes further, identifying five stages in economic growth: the traditional society, the preconditions for take-off, the take-off, the drive to maturity and the age of high mass-consumption. The take-off can be traced to a sharp stimulus, Rostow asserts, and he lists a number of these, including one that hinges on lower trade costs. The take-off, “may come about through a technological (including transport) innovation which sets in motion a chain of secondary expansion in modern sectors and has powerful potential external economy effects which the society exploits.” (Rostow 1960 p.36). Rostow also lists three conditions for a take-off: a rising investment rate, rapid expansion of one or more industrial sectors marked by external economies, and rapid emergence of structures that are necessary for self-sustaining growth. Finally, both Kuznets and Rostow view modern economic growth as a sustained and non-reversible process.

Our model captures some elements of the informal analyses of the classic growth scholars such as Kuznets and Rostow\ Despite their disagreements on important points, both think of the Industrial Revolution as a structural break. Kuznets divides growth into two types: traditional growth (pre-1750) and modern economic growth (post-1750). The distinctive feature of modern growth, according to Kuznets, is the rapidity of the shifts in industrial structure (he talks of sweeping structural changes) and their magnitude when cumulated over decades. Rostow goes further, identifying five stages in economic growth: the traditional society, the preconditions for take-off, the take-off, the drive to maturity and the age of high mass-consumption. The take-off can be traced to a sharp stimulus, Rostow asserts, and he lists a number of these, including one that hinges on lower trade costs. The take-off, “may come about through a technological (including transport) innovation which sets in motion a chain of secondary expansion in modern sectors and has powerful potential external economy effects which the society exploits.” (Rostow 1960 p.36). Rostow also lists three conditions for a take-off: a rising investment rate, rapid expansion of one or more industrial sectors marked by external economies, and rapid emergence of structures that are necessary for self-sustaining growth. Finally, both Kuznets and Rostow view modern economic growth as a sustained and non-reversible process.