The Impact of the Civil War on Capital Intensity and Labor Productivity in Southern Manufacturing

The Civil War resulted in a substantial divergence in the regional structure of factor prices. In particular, wages fell in the South relative to the non-South, but interest rates and other measures of the costs of capital increased. Using archival data for manufacturing establishments, we show that capital-output and capital-labor ratios in southern manufacturing declined relative to non-southern manufacturing after the War, precisely in the direction implied by the regional shifts in factor prices. Labor productivity in Southern manufacturing also declined, but this decline is explained by the reduction in capital intensity.