DP5429 Machines as Engines of Growth

Author(s): Joseph Zeira
Publication Date: December 2005
Keyword(s): economic growth, industrialization, technology
JEL(s): O14, O30, O40
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5429

This paper builds a model of growth through industrialization, as machines replace workers in a growing number of tasks. This enables the economy to experience long-run growth, as machines become servants of humans, and as their number can grow unboundedly. The mechanism that drives growth is the feedback between industrialization and wages. High wages are incentives to use machines and industrialize, while industrialization raises wages. The model shows that industrialization and growth take off only if the economy is productive enough. It also shows that monopoly power can stifle growth, as it lowers wages. Hence, a one-time increase in productivity, or a reduction of monopoly power can push economies from stagnation to industrialization.