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From Smith to Schumpeter: A Theory of Take-off and Convergence to Sustained Growth

Author

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  • Pietro Peretto

Abstract

The growth literature on the Industrial Revolution has produced novel insights that have changed the way economists think about the issue. Most of the available models, however, focus on the household and do not put industrial activity at the center of the analysis. Consequently, they leave out much that should be a prominent part of the story. According to Mokyr (2005) for example, the challenge for theory is to explain not only the quantitative change in growth rates, but also the qualitative transformation of the economy as sustained growth fueled by technological change become one of its persistent and thus defining features. In this paper I propose a model of the qualitative transformation of the economy that assigns the starring role to industry. I introduce land in a Schumpeterian growth model to characterize the transition to sustained growth. A distinctive feature of the model I propose is that it yields a closed-form solution for the transition path. Consequently, it provides an analytically transparent characterization of the dates of the events that drive the economy's phase transitions. In particular, it provides a structural mapping from fundamentals to the key turning points — take-offs, inflection, etc. — that characterize the shape of the economy's path.

Suggested Citation

  • Pietro Peretto, 2012. "From Smith to Schumpeter: A Theory of Take-off and Convergence to Sustained Growth," DEGIT Conference Papers c017_009, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c017_009
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    File URL: http://degit.sam.sdu.dk/papers/degit_17/C017_009.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Kelly, M., 1996. "The Dynamics of Smithian growth," Papers 96/9, College Dublin, Department of Political Economy-.
    3. Holger Strulik & Klaus Prettner & Alexia Prskawetz, 2013. "The past and future of knowledge-based growth," Journal of Economic Growth, Springer, vol. 18(4), pages 411-437, December.
    4. Mokyr, Joel, 2005. "Long-Term Economic Growth and the History of Technology," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 17, pages 1113-1180 Elsevier.
    5. Peretto, Pietro F., 1999. "Industrial development, technological change, and long-run growth," Journal of Development Economics, Elsevier, vol. 59(2), pages 389-417, August.
    6. Oded Galor, 2011. "Unified Growth Theory," Economics Books, Princeton University Press, edition 1, number 9477.
    7. James B. Ang & Jakob B. Madsen, 2011. "Can Second-Generation Endogenous Growth Models Explain the Productivity Trends and Knowledge Production in the Asian Miracle Economies?," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1360-1373, November.
    8. Jones, Charles I., 2005. "Growth and Ideas," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 16, pages 1063-1111 Elsevier.
    9. Peretto, Pietro F, 1998. "Technological Change, Market Rivalry, and the Evolution of the Capitalist Engine of Growth," Journal of Economic Growth, Springer, vol. 3(1), pages 53-80, March.
    10. Mokyr, Joel, 2010. "The Contribution of Economic History to the Study of Innovation and Technical Change," Handbook of the Economics of Innovation, Elsevier.
    11. Galor, Oded, 2005. "From Stagnation to Growth: Unified Growth Theory," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 4, pages 171-293 Elsevier.
    12. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
    13. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
    14. Madsen, Jakob B., 2010. "The anatomy of growth in the OECD since 1870," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 753-767, September.
    15. Morgan Kelly, 1997. "The Dynamics of Smithian Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 939-964.
    16. Oded Galor, 2011. "Unified Growth Theory and Comparative Development," Rivista di Politica Economica, SIPI Spa, issue 2, pages 9-21, April-Jun.
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    Citations

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    Cited by:

    1. Jakob Brochner Madsen, 2016. "Human Accomplishment and Growth in Britain since 1270: The Role of Great Scientists and Education," Monash Economics Working Papers 01-16, Monash University, Department of Economics.
    2. Zakaria Babutsidze & Maurizio Iacopetta, 2016. "Innovation, growth and financial markets," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 1-24, March.
    3. Maurizio Iacopetta, 2016. "Commercial Revolutions, Search, and Development," 2016 Meeting Papers 1394, Society for Economic Dynamics.
    4. repec:kap:jecgro:v:22:y:2017:i:3:d:10.1007_s10887-017-9145-z is not listed on IDEAS
    5. Jakob Brochner Madsen, 2016. "Wealth And Inequality In Eight Centuries Of British Capitalism," Monash Economics Working Papers 20-16, Monash University, Department of Economics.
    6. Mauro Rota & Luca Spinesi, 2013. "At the Onset of the original capital accumulation," Departmental Working Papers of Economics - University 'Roma Tre' 0179, Department of Economics - University Roma Tre.
    7. 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.
    8. Maurizion Iacopetta, 2016. "Commercial revolutions, search, and development," Documents de Travail de l'OFCE 2016-08, Observatoire Francais des Conjonctures Economiques (OFCE).
    9. Christos Karydas, 2017. "The inter-temporal dimension to knowledge spillovers: any non-environmental reason to support clean innovation?," CER-ETH Economics working paper series 17/267, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item

    Keywords

    Endogenous Growth; Market Structure; Take-off;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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