Globalization and the Industrial Revolution

Abstract

This paper argues that trade specialization played an indispensable role in supportingthe Industrial Revolution, allowing the economy to shift resources to the manufacturewithout facing food and raw materials shortage. In our arti cial economy, there are twosectors agriculture and manufacture and the economy is initially closed and under aMalthusian trap. In this economy the industrial revolution entails a transition towards adynamic Heckscher-Ohlin economy. The model reproduces the main stylized facts of thetransition to modern growth and globalization. We show that two-sectors closed-economymodels cannot explain the fall in the value of land relative to wages observed in the 19thcentury and that the transition in this case is much longer than that observed allowingfor trade.