Creating Increasing Returns: The Genesis of Arrow's 'Learning by Doing' Article

Abstract

Kenneth J. Arrow's 1962 article “The Economic Implications of Learning by Doing” is considered as a seminal contribution in endogenous growth theory. However, no history of its origins has been written yet. We aim to fill this gap by studying the genesis of Arrow’s article, showing how its context of discovery conditioned its form, the concepts Arrow used and the way he defined them, and the modelling strategy he employed. We first show that Arrow’s work on scale economies was part of a research project carried with Hollis Chenery on technology and resource allocation funded by the National Science Foundation which enabled Arrow to develop a theoretical and macroeconomic theory of increasing returns. We then examine the influence of Dewey’s experiential approach to education on Arrow’s use of the notion of 'learning by doing' and its approximation by cumulative investment. We finally study the different modelling strategies of learning developed in the fifties and in the sixties, showing the influence of RAND’s and Armen Alchian’s contributions on Arrow’s use of a log-linear equation of learning and its introduction into an economic growth model.

Keywords: Endogenous growth theory; Increasing returns; Learning by doing; Armen Alchian; Kenneth Arrow; John Dewey

JEL Classification: B22; B31; O40