The Solow Model

Agriculture played a very important role in the regions of Europe in which in which later the Industrial Revolution would take hold. This can be explained because to have people start producing non-agricultural goods, farmers must produce a surplus that can be exchanged for these goods, and this was the basis of the Industrial Revolution that happened in North-Western Europe. This surplus is also responsible in determining the size of possible investments in technology that would further increase agricultural production. The key factors in the development of such surpluses can be traced to the new type of land property system and the technology developments occurred in the 15th, 16th, and 17th centuries, before the Industrial Revolution.

The

The model used is the Solow Model: it attempts to explain long-run economic growth by looking at capital accumulation, labor or population growth, and increases in productivity, commonly referred to as technological progress. The equation we use is the aggregate production function, in which is described an economy with one homogenous output, two factor inputs, labour and capital, and factor-augmenting technical

From equation (4) can be easily noted the factors that increase productivity: By increasing capital intensity (K/L) By increasing land area per farm worker (T/L) By improving techniques and soil quality (A)

The first point was involved when harnessing animal power was introduced, since it required animal stock. It became not only a source of labour but also of earnings (demand for meat and dairy products). An animal could provide more work than a farmer. The second point was met when with enclosures and crop rotation we had a concentration of land into larger properties, de facto increasing the land area used by the farmers, since it was all used to grow crops. The third point was involved during the development of the plough and the use of fertilizers.

Farmers had to innovate to keep up with urban living standards because high urban wages pulled farmers into the city and fast urban growth increased the relative demand (and consequently price) of food. The surplus generated this way, united with cheap raw materials, were one of the factor endowments that united with the high real wages caused by urbanization, led to the start Industrial Revolution in