Working Paper: NBER ID: w14077
Authors: Gregory Clark; Kevin H. O'Rourke; Alan M. Taylor
Abstract: For two decades, the consensus explanation of the British Industrial Revolution has placed technological change and the supply side at center stage, affording little or no role for demand or overseas trade. Recently, alternative explanations have placed an emphasis on the importance of trade with New World colonies, and the expanded supply of raw cotton it provided. We test both hypotheses using calibrated general equilibrium models of the British economy and the rest of the world for 1760 and 1850. Neither claim is supported. Trade was vital for the progress of the industrial revolution; but it was trade with the rest of the world, not the American colonies, that allowed Britain to export its rapidly expanding textile output and achieve growth through extreme specialization in response to shifting comparative advantage.
Keywords: Industrial Revolution; Trade; Economic Growth; General Equilibrium Models
JEL Codes: F11; F14; F43; N10; N70; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade with the rest of the world (F10) | Economic growth (O49) |
| No trade with the rest of the world (F19) | Incomes rise by only 5% instead of 45% (E25) |
| No trade with the rest of the world (F19) | Total factor productivity (TFP) growth decreases from 0.4% to 0.22% (O49) |
| Trade with the rest of the world (F10) | Export of textile output (F10) |
| No trade with North America (N41) | Modest decline in cotton textile output (L67) |
| No trade with the rest of the world (F19) | Increase in cotton textile output by a third (L67) |
| Trade (F19) | Specialization in response to comparative advantage (F12) |
| Military power (H56) | Access to international markets (F10) |