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The evolution of markets and the revolution of industry: a unified theory of growth

  • Klaus Desmet

    ()

  • Stephen Parente

    ()

This paper puts forth a theory of the Industrial Revolution whereby an economy transitions from Malthusian stagnation to modern economic growth as firms implement cost-reducing production technologies. This take-off of industry occurs once the market reaches a critical size. The mechanism by which market size affects process innovation relies on two overlooked facts pre-dating England’s Industrial Revolution: the expansion in the variety of consumer goods and the increase in firm size. We demonstrate this mechanism in a dynamic general equilibrium model calibrated to England’s long-run development, and explore how various factors affected the timing of its industrialization. Copyright Springer Science+Business Media, LLC 2012

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File URL: http://hdl.handle.net/10.1007/s10887-012-9080-y
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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 17 (2012)
Issue (Month): 3 (September)
Pages: 205-234

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Handle: RePEc:kap:jecgro:v:17:y:2012:i:3:p:205-234
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