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

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  • Klaus Desmet

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  • Stephen Parente

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Abstract

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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  • Klaus Desmet & Stephen Parente, 2012. "The evolution of markets and the revolution of industry: a unified theory of growth," Journal of Economic Growth, Springer, vol. 17(3), pages 205-234, September.
  • Handle: RePEc:kap:jecgro:v:17:y:2012:i:3:p:205-234
    DOI: 10.1007/s10887-012-9080-y
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    Cited by:

    1. Duarte Nuno Leite & Óscar Afonso & Sandra Tavares Silva, 2015. "The Two Revolutions, Landed Elites and Education during the Industrial Revolution," FEP Working Papers 562, Universidade do Porto, Faculdade de Economia do Porto.
    2. Pedro Bento & Diego Restuccia, 2017. "Misallocation, Establishment Size, and Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 267-303, July.
    3. Klaus Desmet & Stephen Parente, 2014. "Resistance to Technology Adoption: The Rise and Decline of Guilds," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 437-458, July.
    4. Alex Trew, 2014. "Spatial Takeoff in the First Industrial Revolution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 707-725, October.
    5. Dmitriy Veselov & Alexander Yarkin, 2015. "The Great Divergence Revisited: Industrialization, Inequality and Political Conflict in the Unified Growth Model," HSE Working papers WP BRP 118/EC/2015, National Research University Higher School of Economics.
    6. Tommaso Ciarli & Andre Lorentz & Marco Valente & Mario Savona, 2017. "Structural Changes and Growth Regimes," SPRU Working Paper Series 2017-12, SPRU - Science Policy Research Unit, University of Sussex Business School.
    7. Kourtellos, Andros & Stylianou, Ioanna & Tan, Chih Ming, 2013. "Failure to launch? The role of land inequality in transition delays," European Economic Review, Elsevier, vol. 62(C), pages 98-113.
    8. Wen, Yi, 2015. "The Making of an Economic Superpower―Unlocking China’s Secret of Rapid Industrialization," Working Papers 2015-6, Federal Reserve Bank of St. Louis.
    9. Peretto, Pietro F., 2015. "From Smith to Schumpeter: A theory of take-off and convergence to sustained growth," European Economic Review, Elsevier, vol. 78(C), pages 1-26.
    10. Attar, M. Aykut, 2013. "Growth and Demography in Turkey: Economic History vs. Pro-Natalist Rhetoric," MPRA Paper 47275, University Library of Munich, Germany.
    11. Attar, M. Aykut, 2015. "Entrepreneurship, knowledge, and the industrial revolution," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-54.
    12. Ciarli, Tommaso & Valente, Marco, 2016. "The complex interactions between economic growth and market concentration in a model of structural change," Structural Change and Economic Dynamics, Elsevier, vol. 38(C), pages 38-54.
    13. Arias, Maria A. & Wen, Yi, 2016. "Relative Income Traps," Review, Federal Reserve Bank of St. Louis, vol. 98(1), pages 41-60.
    14. Ho, Chi Pui, 2016. "Rise of Women in Unified Growth Theory: French Development Process and Policy Implications," MPRA Paper 73864, University Library of Munich, Germany.
    15. Desmet, Klaus & Greif, Avner & Parente, Stephen L., 2017. "Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence," CEPR Discussion Papers 11976, C.E.P.R. Discussion Papers.
    16. Desmet, Klaus & Henderson, J. Vernon, 2015. "The Geography of Development Within Countries," Handbook of Regional and Urban Economics, Elsevier.
    17. Dai, Feng & Li, Pengpeng & Liang, Ling, 2016. "Long-term economic growth under environmental pressure: An optimal path," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 15-24.
    18. Trew, Alex, 2009. "Institutions and the Scale Effect," SIRE Discussion Papers 2009-51, Scottish Institute for Research in Economics (SIRE).
    19. Thomas Baudin & Robert Stelter, 2016. "Rural exodus and fertility at the time of industrialization," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2016020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    20. Veselov, D. & Yarkin, A., 2016. "Wealth Distribution and Political Conflict in the Model of Transition from Stagnation to Growth," Journal of the New Economic Association, New Economic Association, vol. 32(4), pages 30-60.
    21. Amrita Saha & Tommaso Ciarli, 2018. "Innovation, Structural Change, and Inclusion. A Cross Country PVAR Analysis," SPRU Working Paper Series 2018-01, SPRU - Science Policy Research Unit, University of Sussex Business School.
    22. Pål Børing, 2015. "The effects of firms’ R&D and innovation activities on their survival: a competing risks analysis," Empirical Economics, Springer, vol. 49(3), pages 1045-1069, November.
    23. repec:pdc:jrnbeh:v:14:y:2018:i:2:p:402-414 is not listed on IDEAS
    24. Victor Court & Emmanuel Bovari, 2018. "Energy, knowledge, and demo-economic development in the long run: a unified growth model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01698755, HAL.

    More about this item

    Keywords

    Unified growth theory; Industrial Revolution; Innovation; Competition; Consumer Revolution; 014; 033; 041; N33;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • N33 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Europe: Pre-1913

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