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

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 specific products. Here we take a step back and, looking unprecedently collection of data, show that both exogenous technological progress endogenous effects from increasing experience were important, roughly similar proportions. The demand for products was largely exogenous, correlation between production, cumulative time weak, limiting issues reverse causality multicollinearity.