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

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

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.

A unified theory of the evolution of international income levels

This essay develops a theory of the evolution of international income levels. In particular, it augments the Hansen-Prescott theory of economic development with the Parente-Prescott theory of relative efficiencies and shows that the unified theory accounts for the evolution of international income levels over the last millennium. The essence of this unified theory is that a country starts to experience sustained increases in its living standard when production efficiency reaches a critical point. Countries reach this critical level of efficiency at different dates not because they have access to different stocks of knowledge, but rather because they differ in the amount of society-imposed constraints on the technology choices of their citizenry.Income

Monopoly rights: a barrier to riches

Our thesis is that poor countries are poor because they employee arrangements for which the equilibrium outcomes are characterized by inferior technologies being used, and being used inefficiently. In this paper, we analyze the consequences of one such arrangement. In each industry, the arrangement enables a coalition of factor suppliers to be the monopoly seller of its input services to all firms using a particular production process. We find that the inefficiencies associated with this monopoly arrangement can be large. Whereas other studies have found that inefficiencies induced by monopoly are at most a few percent of output, we find that eliminating this monopoly arrangement could well increase output by roughly a factor of 3 without any increase in inputs.Wealth

FARM WORK, HOME WORK AND INTERNATIONAL PRODUCTIVITY DIFFERENCES

Agriculture's share of economic activity is known to vary inversely with a country's level of development. This paper examines whether extensions of the neoclassical growth model can account for some important sectoral patterns observed in a current cross-section of countries and in the time series data for currently rich countries. We find that a straightforward agricultural extension of the neoclassical growth model restricted to match U.S. observations fails to account for important aspects of the cross-country data. We then introduce a version of the growth model with home production, and we show that this model performs much better.Agribusiness, Productivity Analysis,