Dissertation Summary: Innovation and Industry Development: Lessons from the British Cotton Textile Industry During the U.S. Civil War

Abstract

This dissertation uses the large negative shock to the British cotton textile industry, caused by the U.S. Civil War, in order to test three long-running questions about innovation. Chapter one provides the first empirical test of the leading theory of directed technical change, introduced by Acemoglu (2002). I show that the shortage of U.S. cotton increased innovation in technologies related to Indian cotton, the main alternative, and increased the relative price of Indian cotton, confirming the key predictions of the theory. Chapter two introduces a new methodology for testing whether the existing stock of knowledge affects the level of new innovation and applies the methodology using the empirical setting. Chapter three considers the impact on the location of industries in Northern England. My results provide causal evidence that temporary shocks, acting through inter-industry Marshallian spillovers, can affect the long-run location of economic activity.