Unified Growth Theory and the Transition from Stagnation to Growth

The models we have analyzed in this and the preceding chapters aim to explain the process of economic growth since the takeoff in economic growth following the industrial revolution.

A recent development in the theory of economic growth is the so-called unified growth theory. Unified growth theory aims to explain both the process of economic growth after 1820 and the centuries of economic stagnation that preceded it.¹⁰

Unified growth theory first concentrates on the conditions that prevailed in the Malthusian era, when technological innovations or new resources (such as land) resulted in an increase in population rather than an increase in per capita income and living standards. Thus, unified growth theory treats population growth as endogenous.

The theory then attempts to explain the transition from stagnation to growth, following the industrial revolution: because of the high rate of technological innovation and other social developments, this transition resulted in a demographic transition from high to low population growth rates, allowing for a sustained rise in living standards. This process was facilitated by social changes that emphasized education and training and the accumulation of human capital.

Unified growth theory combines historical and empirical research with theoretical growth models to explain both the Malthusian process of economic fluctuations that led to fluctuations in population growth rates (but more or less stagnant living standards) and the post-Malthusian takeoff in living standards in the industrial economies.

As suggested by Galor [2011, p. 2]:

Unified Growth Theory explores the fundamental factors that have contributed to the remarkable transition from stagnation to growth and examines their significance for the understanding of the contemporary growth process of developed and less developed economies.

Unified growth theory does not necessarily clash with or refute the models of economic growth that we have examined. However, it treats them as partial and incomplete accounts of the process of economic growth and as accounts that are mainly relevant for the post-Malthusian era in industrial economies. It emphasizes the interaction between technical progress and population growth, which are treated as endogenous variables (and not as exogenous parameters, as they are treated in most of the models that we have examined).

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