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On the Transition to Modern Growth

We study a simple model where a single good can be produced using a diminishing-returns technology (Malthus) and a constant-returns technology (Solow). The economy's output exhibits three stages: (i) stagnation, (ii) transition with increasing growth, and (iii) constant growth in the long run. We map the Malthus technology to agriculture and show that the share of agricultural employment is sufficient to determine the onset of economic transition. Using data on the share, we estimate the onset of transition for the U.S. and Western Europe without using output data. Our model implies that output growth during the transition is a first-order autoregressive process and that the rate of decline in the share of agricultural employment is a sufficient statistic to describe the output growth. Quantitatively, while there is no a priori reason why agricultural employment would pin down output dynamics over two centuries, the autoregressive coefficient on the output growth process is practically the same as the one implied by the rate of decline in the share of agricultural employment.

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