NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence

Klaus Desmet, Avner Greif, Stephen Parente

NBER Working Paper No. 24727
Issued in June 2018
NBER Program(s):Economic Fluctuations and Growth Program, International Trade and Investment Program

A market-size-only theory of industrialization cannot explain why England developed nearly two centuries before China. One shortcoming of such a theory is its exclusive focus on producers. We show that once we incorporate the incentives of factor suppliers' organizations such as craft guilds, industrialization no longer depends on market size, but on spatial competition between the guilds' jurisdictions. We substantiate our theory (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing the calibrated model correctly predicts the timings of the Industrial Revolution and the Great Divergence.

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Document Object Identifier (DOI): 10.3386/w24727

 
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