Chapter

Causes and Consequences of the Growth of Total Factor Input and Total Factor Productivity

R. C. O. Matthews, C. H. Feinstein and J. C. Odling‐Smee

in British Economic Growth 1856-1973

Published in print October 1982 | ISBN: 9780198284536
Published online November 2003 | e-ISBN: 9780191596629 | DOI: http://dx.doi.org/10.1093/0198284535.003.0017

Series: Studies of Economic Growth in Industrialized Countries

 Causes and Consequences of the Growth of Total Factor Input and Total Factor Productivity

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Growth was the result of forces on both the supply and the demand side, interacting with each other. While labour input growth was partly supply‐driven, the main reductions in hours of work partly reflected labour's strong bargaining power in periods of high demand for labour, and the high unemployment in the interwar period was a demand‐side phenomenon. The growth of capital was largely endogenous, in line with the acceleration principle. Exogenous factors included reduced competition from capital exports after 1914, improvements over time in the efficiency of capital markets and, in the post‐war period, labour shortages and a higher savings ratio. TFP growth was positively affected by capital growth through the embodiment of new technology. There were also major exogenous, supply‐side factors operating on TFP growth, especially the process of catching up on technologically more advanced economies – which were themselves innovating faster in the post‐war period—and changes in labour attitudes and managerial and entrepreneurial quality. The U‐shaped pattern of output and TFP growth over the whole period is partly attributable to these factors: the scope for catching up increased over time, and industrial relations and managerial and entrepreneurial quality worsened in the latter part of the nineteenth century and improved in the twentieth century, partly because of the jolt to institutions administered by the World Wars. The decline in growth in the first half of the period also owed something to the strength of foreign competition, especially in agricultural products, and to the exhaustion of TFP possibilities in textiles and coal mining. Foreign competition continued to have a negative impact on growth in the post‐war period, but this was offset by the high level of world demand, which contributed to high demand and hence growth in the UK. Throughout, capital accumulation played a reinforcing role, being influenced by, and in turn contributing to, output and TFP growth through both supply and demand side channels.

Keywords: capital; causes of growth; demand; exogeneity; labour; output; supply; total factor productivity

Chapter.  19437 words. 

Subjects: Economic History

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