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

Klaus Desmet, Stephen L. Parente

Research output: Contribution to journalArticle


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.

Original languageEnglish (US)
Pages (from-to)205-234
Number of pages30
JournalJournal of Economic Growth
Issue number3
StatePublished - Sep 1 2012



  • Competition
  • Consumer Revolution
  • Industrial Revolution
  • Innovation
  • Unified growth theory

ASJC Scopus subject areas

  • Economics and Econometrics

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