Institutional Change and the (Slow) Adoption of New Technologies: The Case of Steam

Thor Berger, Lund University
Vinzent Ostermeyer, Lund University

This paper analyzes the adoption and impact of steam technology on firm-level outcomes. We leverage novel yearly establishment-level data covering the entire Swedish manufacturing industry in the latter half of the 19th-century. We provide three key results. First, we document descriptively the diffusion of steam power across firms and discuss the relative importance of various underlying drivers including incorporation, social learning, urbanization, and firm size. Second, difference in differences and event study estimates show that the adoption of steam engines raised firm size, output, and labor productivity significantly. For example, adopting a steam engine increased the number of workers at a firm by 37 percent. While both male and female employment expanded, we observe a significant increase in the share of women in the workforce. The share of children in the workforce was unaffected however. Third, we provide evidence of a key complementarity between institutional and technological change: Incorporation raised the probability of adopting steam and incorporated plants grew significantly larger after adoption. We argue that incorporation lowered the risk for firms to install steam engines and improved their access to capital because they now operated under limited liability. More broadly, these results shed light on the complementarities between institutional and technological change: Organizational innovations were required to reap the full benefits of the new technology of steam engines.

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 Presented in Session 248. Technology and Institutions: New Histories