In his doctoral thesis, titled “Why Firms Grow: The Roles of Institutions, Trade, and Technology during Swedish Industrialization”, economic historian Vinzent Ostermeyer asks the question of why some countries started growing and became rich following the Second Industrial Revolution, while other economies remained poor.
“Previously, researchers mainly studied this question using aggregate data, such as GDP. However, this prevents us from observing the units where industrialisation actually occurred: manufacturing firms. In my thesis, I study how and why firms started growing during industrialisation,” says Vinzent Ostermeyer, doctor in Economic History.
In his thesis, Vinzent Ostermeyer focuses mainly on Sweden, which was by 1850 still a poor country on the European periphery. However, the economy managed to rapidly catch up with the economically leading countries over the next 50 years, making it an interesting case to study. To better understand this process, he collaborated with colleagues at the Department of Economic History at LUSEM and the IIES in Stockholm to digitise and create a unique database, tracking individual manufacturing establishments over their lifetime.
The database: Historical manufactural census of Sweden
Corporations were key
The industrial process brought about major changes in how and where manufacturing goods were produced. While manufacturing was traditionally carried out in small artisan shops, factories relying on steam or water power and a higher division of labour became the norm during industrialisation.
“In my thesis, I show that precisely these factors gave firms a survival advantage so that factories became the dominant mode of industrial production. But what drove technological change and firm-level growth? I also studied the effects of industrial policies on firm-level development.”
Like other Western countries, Sweden allowed firms to form corporations (aktiebolag).
“Presumably, this was useful when raising capital to finance the adoption of new technologies such as steam engines, which were very expensive and required operations at a larger scale. And indeed, what I find is that the ability to incorporate allowed mainly initially small establishments in rural areas to expand their production so that it became profitable to adopt steam power,” says Vinzent Ostermeyer.
Import tariffs helped some – but not all – firms
Also, like other countries, Sweden drastically increased its import tariffs in the closing decade of the 19th century. Previous research is largely divided on the effects this had across countries.
“I find that tariffs help more marginal firms. Tariff protection gave initially low-productivity establishments room to experiment, learn and innovate so they became relatively more productive. However, the opposite happened to initially high-productivity firms.”
Vinzent Ostermeyer also broadens the perspective by showing that industrial growth contributed to broader economic changes. Using 19th-century census data for the USA, Great Britain and Sweden, he reconstructed the sizes of the industrial and service sectors at the city level.
“I find that each new industrial job created around one additional service job. This effect was especially pronounced when high-skilled industrial employment was created and occurred across various types of services.”
The underlying channels of industrialisation
“Today, a key barrier to economic development is that firms in low-income countries generally remain smaller and less efficient than their counterparts in high-income countries,” says Vinzent Ostermeyer.
His thesis highlights several ways through which Swedish firms overcame such constraints to growth:
“Incorporation and import tariffs helped mainly marginal firms to grow, innovate and adopt new technologies. The effects of these processes went beyond just manufacturing as they led to growth in, for example, services too. Overall, industrial growth is at the heart of how countries grew rich, and my thesis presents novel micro-level evidence highlighting the concrete underlying channels of how industrialisation began.”
Vinzent Ostermeyer defended his thesis on 24 February 2023.
The prize money consists of SEK 25 000. The award will be recognised during the LUSEM Staff Summer Luncheon on 17 June 2024.