Primary Sector Shocks and Early American Industrialization
Primary Sector Shocks and Early American Industrialization Recent advances in the measurement of US manufacturing activity over the long nineteenth century have opened up new possibilities for exploring the dynamics of American economic growth. Building on the pioneering work of J. Davis (2003) which assembled a new annual dataset on industrial production from 1790-1915, this paper uses VAR techniques to investigate the impact of shocks (both real and in terms-of-trades) in the primary product sector on fluctuations of manufacturing activity over early U.S. business cycles. This analysis tests the conventional hypothesis (reflected in the work of D. North) asserting changing export demand for primary products was the dominant force driving economic fluctuations during America?s industrial revolution. This analysis is of further interest because during this period when agriculture represented a large share of the economy, episodes of technological regression (due, for example, to adverse weather shocks or to outbreaks of productivity-sapping pests and diseases) could plausibly have significant effects on aggregate economic performance. In addition, this investigation sheds light on the long-standing debate about whether agricultural and manufacturing growth were competing (as historically B. Franklin asserted) or complementary (as A. Hamilton and recently D. Meyer have argued). Finally by comparing the structural relationships across the antebellum and post-bellum periods, this research contributes to the literature treating the Civil War as a break in the volatility of the US macro-economy.
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