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Human Capital and Industrialization: Theory and Evidence from the Enlightenment

20 May 2014
San Francesco - Cappella Guinigi
While human capital is one of the strongest predictors of economic development today, its importance for the Industrial Revolution is typically assessed as minor. We differentiate average human capital (worker skills) from upper tail knowledge both theoretically and empirically. We introduce the two types of human capital in a simple multi-sector model of industrialization that differentiates between traditional and modern manufacturing. While average worker skills are more important in the former, upper tail knowledge raises efficiency in the latter. The model predicts that the local presence of knowledge elites is unimportant in the pre-industrial era, but drives growth thereafter; worker skills, in contrast, are not crucial for growth. To measure the historical presence of knowl- edge elites, we use city-level subscriptions to the famous Encyclopédie in mid-18th century France. We show that subscriber density is a strong predictor of city growth after 1750, but not before the onset of French industrialization. Variables that proxy for the level of development confirm this pattern: soldier height and industrial activity are strongly associated with subscriber density after,but not before, 1750. Literacy, on the other hand, does not predict growth. Finally, joining data on British patents with a large French firm survey from 1837, we show that locations with higher subscriber density were significantly more productive in operating innovative industrial technology.
Voigtlaender, Nico