The evolution of markets and the revolution of industry : a quantitative model of England’s development, 1300-2000

This paper argues that an economy's transition from Malthusian stagnation to modern growth requires markets to reach a critical size, and competition to reach a critical level of intensity. By allowing an economy to produce a greater variety of goods, a larger market makes goods more substitutable, raising the price elasticity of demand, and lowering mark-ups. Firms must then become larger to break even, which facilitates amortizing the fixed costs of innovation. We demonstrate our theory in a dynamic general equilibrium model calibrated to England's long-run development and explore how various factors affect the timing of takeoff.European Community's Seventh Framework ProgramFinancial aid from the European Commission (EFIGE Grant 225343 and HI-POD Grant 225551), the Comunidad de Madrid (PROCIUDAD-CM), and the Spanish Ministry of Science (ECO2008-01300) is acknowledged

Democracy as a Middle Ground: A Uni…ed Theory of Development and Political Regimes

A large literature documents that autocratic regimes have not, on average, outperformed democratic regimes, although they do display greater variance in economic performance. At the same time, no long-lived autocracy currently is rich whereas every long-lived democracy is. This paper puts forth a theory to account for these observations. The theory rests on the idea that autocratic leaders are heterogenous in their preferences and the idea that special interest groups can successfully lobby a democratic regime for policies that delay industrialization. We show that an elite landed class chooses to democratize society only after the economy has accumulated enough wealth.Autocracy; Democracy; Landed Elites; Growth Miracles; Vested Interests

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

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.Uni�ed Growth Theory, Industrial Revolution, Innovation, Competition, Market Revolution

Bigger is better: Market size, demand elasticity and innovation

This paper proposes a novel mechanism whereby larger markets increase competition and facilitate process innovation. Larger markets, in the sense of more people or more open trade, support a larger variety of goods, resulting in a more crowded product space. This raises the price elasticity of demand and lowers mark-ups. Firms, therefore, become larger to break even. This facilitates process innovation as larger firms can amortize R&D costs over more goods. We demonstrate this mechanism in a standard model of process and product innovation. In doing so, we question some important results in the new trade and endogenous growth literatures.trade; population; price elasticity; competition; innovation; firm-size; scale effects; Dixit-Stiglitz; Hotelling

Bigger is better : market size, demand elasticity and innovation.

This article proposes a novel mechanism whereby larger markets increase competition and facilitate process innovation. Larger markets, in the sense of more people or more open trade, support a larger variety of goods, resulting in a more crowded product space. This raises the price elasticity of demand and lowers markups. Firms, therefore, become larger to break even. This facilitates process innovation, as larger firms can amortize R&D costs over more goods. We demonstrate this mechanism in a standard model of process and product innovation. In doing so, we question some important results in the new trade and endogenous growth literatures

Market Size, Trade, and the Resistance to the Adoption of Better Technology

Why is the adoption of more productive technologies more fiercely resisted in some societies than in others? This paper examines the role of market size and free trade in determining whether firms or workers resist the adoption of more advanced technologies. It puts forth a model whereby the price elasticity of demand for each industry's product is an increasing function of the economy's population size. A more elastic demand lowers the resistance to technology adoption because the drop in the price of the industry's output that follows the adoption of a cost-saving technology is associated with a larger increase in industry's revenue. We demonstrate this mechanism numerically and provide empirical support for this theory.Technology Adoption, Resistance, Trade, Ideal Varieties

The Role of Agriculture in Development

A longstanding question in economics is why some countries are so much richer than others. Today, for example, income per capita in the worldÂ’s richest countries is roughly thirty-five times greater than it is in the worldÂ’s poorest countries. Recent work (e.g., Robert E. Lucas 2001, and Rachel Ngai 1999) argues that the proximate cause of this disparity is that todayÂ’s poor countries began the process of industrialization much later and that this process is slow. In this paper we argue that a model of structural transformation provides a useful theory of both why industrialization occurs at different dates, and why it proceeds slowly. A key implication of this model is that growth in agricultural productivity is central to development, a message that also appears prominently in the traditional development literature. (See, e.g., Peter Timmer (1986)).

Technology Adoption and Growth

Technology change is modeled as the result of decisions of individuals and groups of individuals to adopt more advanced technologies. The structure is calibrated to the U.S. and postwar Japan growth experiences. Using this calibrated structure we explore how large the disparity in the effective tax rates on the returns to adopting technologies must be to account for the huge observed disparity in per capita income across countries. We find that this disparity is not implausibly large.