Journal of Economic Growth

, Volume 17, Issue 3, pp 205–234 | Cite as

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

Article

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

Unified growth theory Industrial Revolution Innovation Competition Consumer Revolution 

JEL Classification

014 033 041 N33 

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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Universidad Carlos IIIMadridSpain
  2. 2.CEPRLondonUK
  3. 3.University of Illinois Urbana-ChampaignChampaignUSA
  4. 4.CRENoSCagliariItaly

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