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Spatial competition, innovation and institutions: the Industrial Revolution and the Great Divergence

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  • Klaus Desmet

    (Southern Methodist University
    NBER
    CEPR)

  • Avner Greif

    (Stanford University)

  • Stephen L. Parente

    (University of Illinois at Urbana-Champaign)

Abstract

This paper considers the possible contribution of spatial competition to the Industrial Revolution and the Great Divergence. Rather than exclusively focusing on the incentives of producers to adopt labor-saving technology, we also consider the incentives of factor suppliers’ organizations such as craft guilds to resist. Once we do so, industrialization no longer depends on market size per se, but on spatial competition between the guilds’ jurisdictions. We substantiate our theory’s claim of spatial competition being an important channel for industrialization (i) by providing historical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing that the calibrated model correctly predicts the timings of the Industrial Revolution and the Great Divergence.

Suggested Citation

  • Klaus Desmet & Avner Greif & Stephen L. Parente, 2020. "Spatial competition, innovation and institutions: the Industrial Revolution and the Great Divergence," Journal of Economic Growth, Springer, vol. 25(1), pages 1-35, March.
    • Handle: RePEc:kap:jecgro:v:25:y:2020:i:1:d:10.1007_s10887-019-09173-3
    DOI: 10.1007/s10887-019-09173-3
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    More about this item

    Keywords

    Industrial Revolution; Great Divergence; Craft guilds; Spatial competition; Inter-city competition; Market size; Endogenous institutions; Innovation; Adoption of technology;
    All these keywords.

    JEL classification:

    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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