VECTOR AUTOREGRESSION, COINTEGRATION AND CAUSALITY - TESTING FOR CAUSES OF THE BRITISH INDUSTRIAL-REVOLUTION

The existence, timing, and possible causes of the British industrial r evolution are considered by investigating the time series properties o f industrial production and various explanatory variables. Utilising t wo types of robust cointegration-based causality tests we argue that d omestic forces, notably technological progress, shaped the industrial revolution, whereas overseas trade expansion was mainly a consequence of industrial growth. Results from Granger-type VAR tests are contrast ed with those of Toda and Phillips (Working paper 91-07, University of Western Australia, 1991b), where the latter manifest some of the pote ntial problems raised by the authors when applied to a data set of thi s type. An understanding of the possible causes of the first industria l revolution may shed more general light on the forces promoting indus trialization and growth. To the extent that the first industrial revol ution offers a template, exports appear not to provide a simple pathwa y to industrialization.