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

Klaus Desmet () and Stephen Parente ()

No 7290, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Competition; Industrial Revolution; Innovation; Market Revolution; Unified Growth Theory (search for similar items in EconPapers)
JEL-codes: N33 O14 O33 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse, nep-dge, nep-his and nep-tid
Date: 2009-05
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Working Paper: The evolution of markets and the revolution of industry: A quantitative model of England's development, 1300-2000 (2009)
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