University of Illinois
Urbana, IL 61801
Institutional Affiliation: University of Illinois
Information about this author at RePEc
NBER Working Papers and Publications
|June 2018||Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence|
with Klaus Desmet, Avner Greif: w24727
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.