The Evolution of Markets and the Revolution of Industry: A Quantitative Model of England’s Development, 1300-2000,”CEPR Discussion Paper 7290

This paper argues that an economys 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 \u85xed costs of innovation. We demonstrate our theory in a dynamic general equilibrium model calibrated to Englands long-run development and explore how various factors a¤ect the timing of takeo¤