Working Paper: NBER ID: w24727
Authors: Klaus Desmet; Avner Greif; Stephen Parente
Abstract: 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.
Keywords: Industrial Revolution; Great Divergence; Craft Guilds; Spatial Competition; Intercity Competition; Market Size; Endogenous Institutions; Innovation
JEL Codes: N10; O11; O14; O31; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| spatial competition (R32) | reduced effectiveness of craft guilds (N93) |
| spatial competition (R32) | greater adoption of labor-saving technologies (J89) |
| reduced effectiveness of craft guilds (N93) | greater adoption of labor-saving technologies (J89) |
| spatial competition (R32) | timing of industrial revolution in England (N13) |
| spatial competition (R32) | guilds ceasing their resistance (N93) |
| spatial competition (R32) | stages of industrialization (O14) |