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



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.


Unified growth theory Industrial Revolution Innovation Competition Consumer Revolution 

JEL Classification

014 033 041 N33 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Alesina A., Spolaore E., Wacziarg R. (2000) Economic integration and political disintegration. American Economic Review 90: 1276–1296CrossRefGoogle Scholar
  2. Allen R. C. (2000) Economic structure and agricultural productivity in Europe, 1300–1800. European Review of Economic History 3: 1–25CrossRefGoogle Scholar
  3. Atack J., Bateman F. (2006) Table Dd1-12. In: Carter S. B., Gartner S. S., Haines M. R., Olmstead A. L., Sutch R., Wright G. (eds) Historical statistics of the united states, earliest times to the present: Millennial edition. Cambridge University Press, New YorkGoogle Scholar
  4. Backus D., Kehoe P. J., Kehoe T. J. (1992) In search of scale effects in trade and growth. Journal of Economic Theory 58: 377–409CrossRefGoogle Scholar
  5. Bar M., Leukhina O. (2010) Demographic transition and industrial revolution: A macroeconomic investigation. Review of Economic Dynamics 13: 424–451CrossRefGoogle Scholar
  6. Becker G., Murphy K., Tamura R. (1990) Human capital, fertility, and economic growth. Journal of Political Economy 98: S12–S37CrossRefGoogle Scholar
  7. Berg M. (1994) Factories, workshops, and industrial organization. In: Floud R., McCloskey D. N. (eds) The economic history of Britain since 1700. Cambridge University Press, CambridgeGoogle Scholar
  8. Berg M. (2002) From imitation to invention: Creating commodities in eighteenth-century Britain. Economic History Review LV: 1–30Google Scholar
  9. Berman E., Bound J., Griliches Z. (1994) Changes in the demand for skilled labor within U.S. manufacturing: Evidence from the annual survey. Quarterly Journal of Economics 109: 367–397CrossRefGoogle Scholar
  10. Boucekkine R., de la Croix D., Peeters D. (2007) Early literacy achievements, population density, and the transition to modern growth. Journal of the European Economic Association 5: 183–226CrossRefGoogle Scholar
  11. Broadberry, S., Campbell, B., Klein, A., Overton, M., & van Leeuwen, B., (2010). British economic growth, 1270—1870. Unpublished Working Paper, University of Warwick.Google Scholar
  12. Clark G. (2002) Farmland rental values and Agrarian history: England and Wales, 1500–1912. European Review of Economic History 6: 281–309CrossRefGoogle Scholar
  13. Clark, G. (2009). The macroeconomic aggregates for England, 1209–2008, Working Papers 09-19, Department of Economics, University of California at DavisGoogle Scholar
  14. Crafts N. F. R. (1995) Exogenous or endogenous growth? The industrial revolution reconsidered. Journal of Economic History 55: 745–772CrossRefGoogle Scholar
  15. Crafts N. F. R., Harley C. K. (1992) Output growth and the industrial revolution: A restatement of the Crafts-Harley view. Economic History Review 45: 703–730CrossRefGoogle Scholar
  16. de la Croix D., Doepke M. (2004) Public versus private education when differential fertility matters. Journal of Development Economics 73: 607–629CrossRefGoogle Scholar
  17. De Vries J. (1993) Between purchasing power and the world of goods: Understanding the household economy in early modern Europe. In: Brewer J., Porter R. (eds) Consumption and the world of goods. Routledge, LondonGoogle Scholar
  18. Desmet K., Parente S. L. (2010) Bigger is better: Market size, demand elasticity and innovation. International Economic Review 51: 319–333CrossRefGoogle Scholar
  19. Diamond J. (1997) Guns, germs, and steel: The fates of human societies. W.W. Norton, New YorkGoogle Scholar
  20. Ekelund R., Tollison R. (1981) Mercantilism as a rent-seeking society: Economic regulation in historical perspective. Texas A&M University, College Station, TXGoogle Scholar
  21. Ellis, C. (2006). Elasticities, mark-ups and technical progress: Evidence from a state space approach. Working Paper 300, Bank of England.Google Scholar
  22. Federico G. (2006) Feeding the world: An economic history of agriculture, 1800–2000. Princeton University Press, Princeton, NJGoogle Scholar
  23. Feinstein C. H., Pollard S. (1988) Studies in capital formation in the United Kingdom: 1750–1920. Oxford University Press, OxfordGoogle Scholar
  24. Findlay R., O’Rourke K. (2007) Power and plenty: Trade, war and the world economy in the second millennium. Princeton University Press, PrincetonGoogle Scholar
  25. Galor O. (2010) The 2008 Klein Lecture. comparative economic development: Insights from unified growth theory. International Economic Review 51: 1–44CrossRefGoogle Scholar
  26. Galor O., Moav O. (2002) Natural selection and the origin of economic growth. Quarterly Journal of Economics 117: 1133–1192CrossRefGoogle Scholar
  27. Galor O., Weil D. (2000) Population, technology, and growth: From the malthusian regime to the demographic transition and beyond. American Economic Review 90: 806–828CrossRefGoogle Scholar
  28. Gilboy E. W. (1932) Demand as a factor in the industrial revolution. In: Cole A. H. (eds) Facts and factors in economic history. Metheun, LondonGoogle Scholar
  29. Goodfriend M., McDermott J. (1995) Early development. American Economic Review 85: 116–133Google Scholar
  30. Griffiths T., Hunt P., O’Brien P. (1992) Inventive activity in the British textile industry, 1700–1800. Journal of Economic History 52: 880–906CrossRefGoogle Scholar
  31. Hansen G., Prescott E. C. (2002) Malthus to Solow. American Economic Review 92: 1205–1217CrossRefGoogle Scholar
  32. Harley C. K., Crafts N. F. R. (2000) Simulating two views of the industrial revolution. Journal of Economic History 60: 819–841Google Scholar
  33. Hayami Y., Ruttan V. W. (1971) Agricultural development. The John Hopkins Press, BaltimoreGoogle Scholar
  34. Helpman E., Krugman P. R. (1985) Market structure and foreign trade. MIT Press, CambridgeGoogle Scholar
  35. Ho T. J. (1979) Time costs of child rearing in the rural Philippines. Population and Development Review 5: 643–662CrossRefGoogle Scholar
  36. Hotelling H. (1929) Stability in competition. Economic Journal 39: 41–57CrossRefGoogle Scholar
  37. Hummels D., Lugovskyy V. (2009) International pricing in a generalized model of ideal variety. Journal of Money, Credit and Banking 41: 3–33CrossRefGoogle Scholar
  38. Jaimovich N., Floetotto M. (2008) Firm dynamics, mark up variations, and the business cycle. Stanford University, MimeoGoogle Scholar
  39. Jones C. I. (1995) R&D-Based models of economic growth. Journal of Political Economy 103: 759–784CrossRefGoogle Scholar
  40. Kortum S. (1997) Research, patenting and technological change. Econometrica 65: 1389–1419CrossRefGoogle Scholar
  41. Lagerlöf N. P. (2003) From Malthus to modern growth: Can epidemics explain the three regimes?. International Economic Review 44: 755–777CrossRefGoogle Scholar
  42. Lagerlöf N. P. (2006) The Galor-Weil model revisited: A quantitative exercise. Review of Economic Dynamics 9: 116–142CrossRefGoogle Scholar
  43. Laincz C., Peretto P. (2006) Scale effects in endogenous growth theory: An error of aggregation not specification. Journal of Economic Growth 11: 263–288CrossRefGoogle Scholar
  44. Lancaster K. (1979) Variety, equity and efficiency. Columbia University Press, New YorkGoogle Scholar
  45. Lloyd-Jones R., Le Roux A. A. (1980) The size of firms in the cotton industry: Manchester 1815–1841. The Economic History Review 33: 72–82Google Scholar
  46. Lucas R. E. (2002) Lectures on economic growth. Harvard University Press, CambridgeGoogle Scholar
  47. Maddison A. (2001) The world economy: A millennium perspective. Development Centre of the OECD, ParisGoogle Scholar
  48. Mantoux P. (1928) The industrial revolution in the 18th century. Harper Torchbooks, New YorkGoogle Scholar
  49. Mathias P. (1959) The brewing industry in England, 1700–1830. Cambridge University Press, LondonGoogle Scholar
  50. McKendrick N. (1982) Commercialization and the economy. In: McKendrick N., Brewer J., Plumb J. H. (eds) the birth of a consumer society. Indiana University Press, BloomingtonGoogle Scholar
  51. Mendels F. F. (1972) Proto-industrialization: The first phase of the industrialization process. Journal of Economic History 32: 241–261CrossRefGoogle Scholar
  52. Mitchell B. R. (1988) British historical statistics. Cambridge University Press, New YorkGoogle Scholar
  53. Mokyr J. (2002) The gifts of athena: Historical origins of the knowledge economy. Princeton University Press, PrincetonGoogle Scholar
  54. Mokyr J. (1990) The lever of riches: Technological creativity and economic progress. Oxford University Press, New YorkGoogle Scholar
  55. North D. C., Thomas R. P. (1973) The rise of the western world: A new economic history. Cambridge University Press, CambridgeCrossRefGoogle Scholar
  56. North D. C., Weingast B. (1989) The evolution of institutions governing public choice in seventeenth century England. Journal of Economic History 49: 803–832CrossRefGoogle Scholar
  57. Ottaviano G. I. P., Tabuchi T., Thisse J.-F. (2002) Agglomeration and trade revisited. International Economic Review 43: 409–436CrossRefGoogle Scholar
  58. Peretto P. F. (1998) Technological change, market rivalry, and the evolution of the capitalist engine of growth. Journal of Economic Growth 3: 53–80CrossRefGoogle Scholar
  59. Peretto P. F. (1999a) Cost reduction, entry, and the interdependence of market structure and economic growth. Journal of Monetary Economics 43: 173–195CrossRefGoogle Scholar
  60. Peretto P. F. (1999b) Industrial development, technological change, and long-run growth. Journal of Development Economics 59: 389–417CrossRefGoogle Scholar
  61. Polanyi K. (1944) The great transformation. Beacon Press, BostonGoogle Scholar
  62. Pollard S. (1965) The genesis of modern management. Penguin, LondonGoogle Scholar
  63. Randall A. (1991) Before the luddites: Custom, community, and machinery in the English Woolen Industry, 1776–1809. Cambridge University Press, CambridgeGoogle Scholar
  64. Schultz T. W. (1968) Economic growth and agriculture. McGraw-Hill, New YorkGoogle Scholar
  65. Shiue C. H., Keller W. (2007) Markets in China and Europe on the eve of the industrial revolution. American Economic Review 97: 1189–1216CrossRefGoogle Scholar
  66. Simon C. J., Tamura R. (2009) Do higher rents discourage fertility? Evidence from U.S. cities, 1940–2000. Regional Science and Urban Economics 39: 33–42CrossRefGoogle Scholar
  67. Smith A. (1776) An inquiry into the nature and causes of the wealth of nations (Reprint). Oxford University Press, OxfordGoogle Scholar
  68. Sokoloff K. L. (1988) Inventive activity in early industrial America: Evidence from patent records, 1790–1846. Journal of Economic History 48: 813–850CrossRefGoogle Scholar
  69. Stabel P. (2004) Guilds in late medieval flanders: Myths and realities of guild life in an export-oriented environment. Journal of Medieval History 30: 187–212CrossRefGoogle Scholar
  70. Stokey, N. (2001). A quantitative model of the british industrial revolution, 1780–1850. Carnegie-Rochester conference series on public policy, pp. 55–109.Google Scholar
  71. Styles J. (2000) Product innovation in early modern London. Past and Present 168: 124–169CrossRefGoogle Scholar
  72. Szostak R. (1989) The organization of work: The emergence of the factory revisited. Journal of Economic Behavior and Organization 11: 343–358CrossRefGoogle Scholar
  73. Szostak R. (1991) The role of transportation in the industrial revolution. McGill-Queens University Press, Buffalo, NYGoogle Scholar
  74. Thompson E. P. (1963) The making of the english working class. Vintage Books, New YorkGoogle Scholar
  75. Toynbee A. (1884) Toynbee’s industrial revolution: A reprint of lectures on the industrial revolution. David and Charles, New YorkGoogle Scholar
  76. Voigtländer, N., & Voth, H.-J. (2006). Why England? Demographic factors, structural change and physical capital accumulation during the industrial revolution. Journal of Economic Growth, pp. 319–361Google Scholar
  77. Weatherill L. (1988) Consumer behavior and material culture in Britain. Routledge, New York, pp 1660–1770Google Scholar
  78. Yang X., Heijdra B. J. (1993) Monopolistic competition and optimum product diversity. American Economic Review 83: 295–301Google Scholar
  79. Yang, D. T., & Zhu, X. (2008). Modernization of agriculture and long-term growth. Mimeo.Google Scholar
  80. Young A. (1998) Growth without scale effects. Journal of Political Economy 106: 41–63CrossRefGoogle Scholar

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

Personalised recommendations