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

Klaus Desmet; Stephen L. Parente

doi:10.1007/s10887-012-9080-y

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

Klaus Desmet
, Stephen L. Parente

Research output: Contribution to journal › Article › peer-review

Abstract

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 language	English (US)
Pages (from-to)	205-234
Number of pages	30
Journal	Journal of Economic Growth
Volume	17
Issue number	3
DOIs	https://doi.org/10.1007/s10887-012-9080-y
State	Published - Sep 2012

Keywords

Competition
Consumer Revolution
Industrial Revolution
Innovation
Unified growth theory

ASJC Scopus subject areas

Economics and Econometrics

Online availability

10.1007/s10887-012-9080-y

Library availability

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title = "The evolution of markets and the revolution of industry: A unified theory of growth",

abstract = "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.",

keywords = "Competition, Consumer Revolution, Industrial Revolution, Innovation, Unified growth theory",

author = "Klaus Desmet and Parente, \{Stephen L.\}",

note = "Acknowledgements We thank Michael Bar, Greg Clark, Oded Galor, Thomas Geraghty, Douglas Gollin, Berthold Herrendorf, Peter Howitt, Chad Jones, Richard Rogerson, David Weil, and Dennis Yang, seminar participants at the 2008 NBER Meeting on Economies across space and time, 2008 Midwest Macro Meetings, 2008 SED Meetings, Penn State, Arizona State, Tufts University, UC Davis, Federal Reserve Bank of Atlanta, Federal Reserve Bank of San Francisco, Amsterdam, Universit{\`a} di Cagliari, CEMFI, Stockholm School of Economics, Namur, and Tinbergen Institute as well as three anonymous referees. Financial aid from the European Commission (EFIGE Grant 225551 and HI-POD Grant 225343), the Comunidad de Madrid (PROCIUDAD-CM), the Spanish Ministry of Science (ECO2008-01300 and ECO2011-27014) and the Bank of Spain Excellence Program is acknowledged. The usual disclaimer applies.",

year = "2012",

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doi = "10.1007/s10887-012-9080-y",

language = "English (US)",

volume = "17",

pages = "205--234",

journal = "Journal of Economic Growth",

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publisher = "Springer New York",

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N1 - Acknowledgements We thank Michael Bar, Greg Clark, Oded Galor, Thomas Geraghty, Douglas Gollin, Berthold Herrendorf, Peter Howitt, Chad Jones, Richard Rogerson, David Weil, and Dennis Yang, seminar participants at the 2008 NBER Meeting on Economies across space and time, 2008 Midwest Macro Meetings, 2008 SED Meetings, Penn State, Arizona State, Tufts University, UC Davis, Federal Reserve Bank of Atlanta, Federal Reserve Bank of San Francisco, Amsterdam, Università di Cagliari, CEMFI, Stockholm School of Economics, Namur, and Tinbergen Institute as well as three anonymous referees. Financial aid from the European Commission (EFIGE Grant 225551 and HI-POD Grant 225343), the Comunidad de Madrid (PROCIUDAD-CM), the Spanish Ministry of Science (ECO2008-01300 and ECO2011-27014) and the Bank of Spain Excellence Program is acknowledged. The usual disclaimer applies.

PY - 2012/9

Y1 - 2012/9

N2 - 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.

AB - 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.

KW - Competition

KW - Consumer Revolution

KW - Industrial Revolution

KW - Innovation

KW - Unified growth theory

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ER -

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

Abstract

Keywords

ASJC Scopus subject areas

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