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

  • Desmet, Klaus
  • Parente, Stephen

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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  1. Klaus Desmet & Stephen L. Parente, 2010. "Bigger Is Better: Market Size, Demand Elasticity, And Innovation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 319-333, 05.
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  19. Nils-Petter Lagerlöf, 2003. "From Malthus to Modern Growth: Can Epidemics Explain the Three Regimes?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 755-777, 05.
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  24. Dixit, Avinash K & Stiglitz, Joseph E, 1993. "Monopolistic Competition and Optimum Product Diversity: Reply," American Economic Review, American Economic Association, vol. 83(1), pages 302-04, March.
  25. Maxine Berg, 2002. "From imitation to invention: creating commodities in eighteenth-century Britain[I am grate]," Economic History Review, Economic History Society, vol. 55(1), pages 1-30, 02.
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  27. Mendels, Franklin F., 1972. "Proto-industrialization: The First Phase of the Industrialization Process," The Journal of Economic History, Cambridge University Press, vol. 32(01), pages 241-261, March.
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  29. Allen, Robert C., 2000. "Economic structure and agricultural productivity in Europe, 1300 1800," European Review of Economic History, Cambridge University Press, vol. 4(01), pages 1-25, April.
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