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Can Stimulating Demand Drive Costs Down? World War II as a Natural Experiment

Published online by Cambridge University Press:  11 July 2022

François Lafond*
Senior Research Associate, Institute for New Economic Thinking at the Oxford Martin School and Mathematical Institute, University of Oxford, INET, Manor Road Building, Manor Road, Oxford, OX1 3UQ. E-mail:
Diana Greenwald
Assistant Curator, Isabella Stewart Gardner Museum, Boston, 25 Evans Way, Boston, MA. E-mail:
J. Doyne Farmer
Professor, Institute for New Economic Thinking at the Oxford Martin School and Mathematical Institute, University of Oxford, and Santa Fe Institute, INET, Manor Road Building, Manor Road, Oxford, OX1 3UQ. E-mail:


U.S. military production during World War II increased at an impressive rate and led to large declines in unit costs. However, the literature has focused on elucidating detailed mechanisms behind this relationship, using small datasets on specific products. Here we take a step back and, looking at an unprecedently large collection of data, we show that both exogenous technological progress and endogenous effects from increasing production experience were important, in roughly similar proportions. The demand for military products was largely exogenous, and the correlation between production, cumulative production, and time was weak, limiting issues of reverse causality and multicollinearity.

© The Author(s), 2022. Published by Cambridge University Press on behalf of the Economic History Association

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This work was supported by the EU grant FP7-ICT-2013-611272 (GROWTHCOM), Partners for a New Economy, Baillie Gifford, the EU grant 730427 (COP-21 RIPPLES), the Rebuilding Macroeconomics project (which is supported by the Economic and Social Research Council), and the Institute for New Economic Thinking at the Oxford Martin School. We would like to thank Kieran Marray for excellent research assistance and Nick Chater, Giovanni Dosi, Cameron Hepburn, David Hendry, Christopher Magee, John Muellbauer, Bill Nordhaus, Matteo Richiardi, our INET colleagues as well as audiences at the CCS 2016, EHS 2018, EEA-ESEM 2019, Singapore NUS, Oxford, MIT, LSE, OECD, CONCORDi 2019, and Waterloo for comments. The usual disclaimer applies.



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