Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111251
Authors: 
Ventura, Jaume
Voth, Hans-Joachim
Year of Publication: 
2015
Series/Report no.: 
Working Paper Series, University of Zurich, Department of Economics 194
Abstract: 
Why did the country that borrowed the most industrialize first? Earlier research has viewed the explosion of debt in 18th century Britain as either detrimental, or as neutral for economic growth. In this paper, we argue instead that Britain's borrowing boom was beneficial. The massive issuance of liquidly traded bonds allowed the nobility to switch out of low-return investments such as agricultural improvements. This switch lowered factor demand by old sectors and increased profits in new, rising ones such as textiles and iron. Because external financing contributed little to the Industrial Revolution, this boost in profits in new industries accelerated structural change, making Britain more industrial more quickly. The absence of an effective transfer of financial resources from old to new sectors also helps to explain why the Industrial Revolution led to massive social change - because the rich nobility did not lend to or invest in the revolutionizing industries, it failed to capture the high returns to capital in these sectors, leading to relative economic decline.
Subjects: 
crowding out
debt crises
Industrial Revolution
Ricardian equivalence
misallocation
financial repression
structural change
productivity
JEL: 
E22
E25
E62
H56
H60
N13
N23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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