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The Evolution of Markets and the Revolution of Industry: A Quantitative Model of England's Development, 1300-2000

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  • Desmet, Klaus
  • Parente, Stephen

Abstract

This paper argues that an economy's transition from Malthusian stagnation to modern growth requires markets to reach a critical size, and competition to reach a critical level of intensity. By allowing an economy to produce a greater variety of goods, a larger market makes goods more substitutable, raising the price elasticity of demand, and lowering mark-ups. Firms must then become larger to break even, which facilitates amortizing the fixed costs of innovation. We demonstrate our theory in a dynamic general equilibrium model calibrated to England's long-run development and explore how various factors affect the timing of takeoff.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7290.

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Date of creation: May 2009
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Handle: RePEc:cpr:ceprdp:7290

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Related research

Keywords: Competition; Industrial Revolution; Innovation; Market Revolution; Unified Growth Theory;

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References

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Citations

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Cited by:
  1. Galor, Oded, 2009. "2008 Lawrence R. Klein Lecture -- Comparative Economic Development: Insights from Unified Growth Theory," CEPR Discussion Papers 7519, C.E.P.R. Discussion Papers.
  2. Ferreira, Pedro Cavalcanti & Pessôa, Samuel & Santos, Marcelo Rodrigues, 2011. "Globalization and the Industrial Revolution," Insper Working Papers wpe_253, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  3. Hans-Joachim Voth, 2013. "The Three Horsemen of Riches: Plague, War, and Urbanization in Early Modern Europe," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 774-811.

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