Entrepreneurship, Knowledge, and the Industrial Revolution

This dissertation constructs and studies a simple unified growth model that explains the timing of the industrial revolution through entrepreneurship and entrepreneurs' previously unexplored role in the accumulation of useful knowledge. Three premises are responsible for the main results: First, inventions and discoveries, i.e. two forms of useful knowledge, are differentiated such that a larger stock of discoveries implies a higher level of inventive productivity. Second, entrepreneurs own and manage the firms operating in the innovative sector of the economy, and they thus may find it optimal to spend some of their scarce time endowment to inventive activity by decreasing the time allocated to routine management otherwise. Third, the stock of useful discoveries expands in time through the process of collective discovery. Entrepreneurs, during their lifetime, serendipitously perceive new useful discoveries and share what they discover with each other in their common social environment. Two key results are that (i) the optimal level of inventive effort by entrepreneurs is zero if the stock of useful discoveries is sufficiently small, and (ii) an industrial revolution, i.e. an endogenous switch from zero to positive inventive effort, is an inevitable outcome of the process of collective discovery even though it might be delayed for long epochs of stagnation. Population growth and structural transformation, i.e. two well-documented aspects of the transition from stagnation to growth, are not only affected by technological progress as usual but also determine how fast the economy moves towards its invention threshold. Calibrated to match some key data moments of England's economic development during the last 350 years, the model performs reasonably well in explaining the main patterns of the transition from stagnation to growth, i.e. the demographic transition, urbanization, industrialization and the acceleration of technological progress. Counterfactual experiments show that even small deviations from the benchmark model may create large effects on the timing of the industrial revolution.Doctor of Philosoph