The Evolution of Markets and the Revolution of Industry: A Unified Theory of Growth

42 Pages Posted: 3 Jun 2010

See all articles by Klaus Desmet

Klaus Desmet

Southern Methodist University (SMU); Centre for Economic Policy Research (CEPR)

Stephen L. Parente

University of Illinois at Urbana-Champaign - Department of Economics

Date Written: November 1, 2009

Abstract

This paper puts forth a unified theory of growth that captures a number of relevant features of countries' transitions from stagnant, predominantly rural economies to vibrant, industrialized economies that have been overlooked by the literature. In our theory, increasing variety of consumer goods and increasing firm size, which are the consequence of a gradual expansion in the market, sow the seeds for process innovation and an economy’s take-off. 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 take-off.

Keywords: Unified Growth Theory, Industrial Revolution, Innovation, Competition, Market Revolution

JEL Classification: 014, 033, 041, N33

Suggested Citation

Desmet, Klaus and Parente, Stephen L., The Evolution of Markets and the Revolution of Industry: A Unified Theory of Growth (November 1, 2009). Centro Studi Luca d'Agliano Development Studies Working Paper No. 282. Available at SSRN: https://ssrn.com/abstract=1619820 or http://dx.doi.org/10.2139/ssrn.1619820

Klaus Desmet (Contact Author)

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stephen L. Parente

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

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