Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence

52 Pages Posted: 18 Jun 2018

See all articles by Klaus Desmet

Klaus Desmet

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

Avner Greif

Stanford University - Department of Economics; Canadian Institute for Advanced Research (CIFAR)

Stephen L. Parente

University of Illinois at Urbana-Champaign - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: June 2018

Abstract

A market-size-only theory of industrialization cannot explain why England developed nearly two centuries before China. One shortcoming of such a theory is its exclusive focus on producers. We show that once we incorporate the incentives of factor suppliers' organizations such as craft guilds, industrialization no longer depends on market size, but on spatial competition between the guilds' jurisdictions. We substantiate our theory (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing the calibrated model correctly predicts the timings of the Industrial Revolution and the Great Divergence.

Suggested Citation

Desmet, Klaus and Greif, Avner and Parente, Stephen L., Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence (June 2018). NBER Working Paper No. w24727. Available at SSRN: https://ssrn.com/abstract=3198029

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

Avner Greif

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
United States
650-725-8936 (Phone)

Canadian Institute for Advanced Research (CIFAR) ( email )

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Toronto, Ontario
Canada

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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