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Economic growth, innovation, institutions, and the Great Enrichment

Abstract

A number of factors are held up as causes of the economic takeoff of the early 1800s in northwest Europe and North America and later Asia, though certain popularly believed factors such as geography and capital accumulation do not have much empirical support. Nor do other commonly held factors such as trade, plunder, and colonization. It is better understood today that productivity enhancing innovation, new venture and new market creation enabling consumption by a wider range of consumers yield firm and economic growth, as well as improved standards of living. In this overview, these literatures are summarized and examined. In addition the evidence regarding the effect of institutions on economic growth is discussed as well as the role of international business in the transfer of positive institutions and organizational routines.

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Fig. 1

Notes

  1. 1.

    There were temporary economic efflorescences, as Goldstone (2002) has called them, such as in Greece and Rome under certain leaders (e.g. Bresson, 2015) or the boom of Song China. These led to a temporary doubling or tripling of income over a century or more. Yet these were temporary and income usually leveled off or even drifted back toward earlier levels.

  2. 2.

    There are other, less accepted arguments such as rainfall and coal deposits that roughly fit into the geographic view. These views are reviewed in some detail in McCloskey (2010).

  3. 3.

    The time of the economic take-off depends on the country in question. The United Kingdom (UK) and United States (US) had an economic take-off in the early 1800s, with the Netherlands perhaps a bit earlier in the 1700s, Sweden’s takeoff occurred in the late nineteenth century, and Spain, China and India experienced economic takeoffs much later in the twentieth century Maddison, 2006; McCloskey, 2010).

  4. 4.

    Paradoxically, Greece slipped back into no (or slow) growth stagnation for centuries, and lost its independence until the nineteenth century (Bresson, 2015).

  5. 5.

    Cotton factories in the early decades of the Industrial Revolution were not capital-intensive (Pollard, 1964).

  6. 6.

    Similarly, research has shown that the railroads in the US provided little additional economic effect above alternative transport methods such as established land routes and canals. They facilitated certain businesses such as meat packing, but the effect on GDP was minor (Fogel, 1964; McCloskey, 2010).

  7. 7.

    Even macroeconomic policies do not have much effect on incomes, after controlling for institutions and their quality (Easterly & Levine, 2003).

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Tomizawa, A., Zhao, L., Bassellier, G. et al. Economic growth, innovation, institutions, and the Great Enrichment. Asia Pac J Manag (2019). https://doi.org/10.1007/s10490-019-09648-2

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Keywords

  • Economic history
  • Economic growth
  • Institutional theory
  • International business
  • Great Enrichment
  • Trade
  • Innovation