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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

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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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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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Find related papers by JEL classification:
N33 - Economic History - - Labor and Consumers, Demography, Education, Income, and Wealth - - - Europe: Pre-1913
O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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