Joan R. Rosˇs, European University Institute

Economic historians have long been concerned with the explanation of the early phases of industrialisation. Controversy in this area is centered in two broad interpretations. On the one hand, some have argued that increasing investment rates and a large transfer of labour into manufacturing could perfectly explain output growth during the early industrialisation. On the other hand, others have pointed out the main role of productivity improvement. Moreover, many economic historians have insisted on the existence of strong links between investment, especially in machines, and productivity improvement because innovations were capital-deepening during this early phases. In contrast, other scholars have underlined the crucial importance of innovations that there were non capital-embodied and affected the organization of labour, firms and markets. Despite the importance of the issues involved, unfortunately, the quantitative evidence has been habitually circumscribed to a few cases. Therefore, this paper concentrates its energies on providing a careful analysis of the historical patterns of output growth, factor accumulation, and productivity growth in a leading European industrial region, Catalonia, that is absent of the international literature. The results indicate that the productivity improvement accounts as the main source of growth of the Catalan industry because any kind of growth account seems capable of suppressing innovation and seeking to push estimated TFP growth to zero. The models that explain growth with the variations in the growth of real factor input, mainly the stock of physical capital, do not correlate well with the Catalan experience. Similarly, neither structural models nor human capital accumulation have the capacity to explain Catalan manufacturing growth. Some general interpretation of Catalan industry growth can be derived from our results. The first implication is that innovation in the light industries in the nineteenth century had strong multiplicative effects. In other words, the adoption of some innovations in these industries produced larger effects in the growth of the output. A second implication is that direct machinery investment and larger TFP growth rates did not correlate well. In other words, the non capital-embodied innovations had a leading role in the productivity improvement. Finally, the results cast doubt on the traditional explanations for the Continental industrialisation based on the diffusion and adoption of British machinery. Usually, in these explanations technology is embodied in the stock of capital goods and the so-called adopters and users of technology play no role in developing or changing the technologies they choose and use. In contrast, this paper emphasizes the importance of active involvement in technical change and the role played by the local innovations. In particular, Catalan industry not only was successful because of its ability to import technologies from abroad, but also due to its capability in adapting and creating dynamic organizations. Consequently, the achievement of high rates of productivity was strongly related to the local conditions and capabilities. In this environment, the presence of markets pressures and opportunities, the rivalry among firms, the local knowledge, and the social conditions emerge as main factors for economic development.