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The Evolution of Markets and the Revolution of Industry: a unified theory of growth

  • Klaus Desmet

    (Universidad Carlos III)

  • Stephen L. Parente

    (University of Illinois)

This paper puts forth a unified theory of growth that captures a number of relevant features of countries' transitions from stagnant, predominantly rural economies to vibrant, industrialized economies that have been overlooked by the literature. In our theory, increasing variety of consumer goods and increasing firm size, which are the consequence of a gradual expansion in the market, sow the seeds for process innovation and an economy's take-off. 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 take-off.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 990.

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Date of creation: 2010
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Handle: RePEc:red:sed010:990
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