The Complementary between Technology and Human Capital in the Early Phase of Industrialization Raphaël Franck Oded Galor CESIFO WORKING PAPER NO. 5485 CATEGORY 6: FISCAL POLICY, MACROECONOMICS AND GROWTH AUGUST 2015 An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the RePEc website: www.RePEc.org • from the CESifo website: www.CESifoT -group.org/wpT ISSN 2364-1428 CESifo Working Paper No. 5485 The Complementary between Technology and Human Capital in the Early Phase of Industrialization Abstract The research explores the effect of industrialization on human capital formation. Exploiting exogenous regional variations in the adoption of steam engines across France, the study establishes that in contrast to conventional wisdom that views early industrialization as a predominantly deskilling process, the industrial revolution was conducive for human capital formation, generating broad increases in literacy rates and education attainment. JEL-Code: N330, N340, O140, O330. Keywords: capital-skill complementarity, economic growth, industrialization, human capital, steam engine. Raphaël Franck Oded Galor Department of Economics Department of Economics Bar-Ilan University Brown University Israel – 52900 Ramat Gan 64 Waterman St.
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[email protected] This Version: July 21st, 2015 We thank Mario Carillo, Gregory Casey, Pedro Dal Bo, Martin Fiszbein, Gregory Casey, Marc Klemp, Stelios Michalopoulos, Natacha Postel-Vinay, Assaf Sarid, Yannai Spitzer and David Weil for helpful comments and discussions. We thank Guillaume Daudin and Nico Voigtländer for sharing their data with us. 1 Introduction While it is widely recognized that technology-skill complementarity has characterized the nature of technology in advanced stages of development, the predominant view has been that the industrial revolution in its early phases has largely been a deskilling process (Mokyr, 1993; Goldin and Katz, 1998; Acemoglu, 2002).