The Evolution of Markets and the Revolution of Industry: a Quantitative Model of England's Development, 1300-2000

EFIGE IS A PROJECT DESIGNED TO HELP IDENTIFY THE INTERNAL POLICIES NEEDED TO IMPROVE EUROPE’S EXTERNAL COMPETITIVENESS

Klaus Desmet and Stephen L. Parente

The evolution of markets and the revolution of industry: a quantitative model of England’s development, 1300-2000

EFIGE working paper 05 April 2009

LEGAL NOTICE: The research leading to these results has received funding from the European Community's Seventh Framework Funded under the Programme (FP7/2007- Socio-economic 2013) under grant Sciences and agreement n° 225551. Humanities The views expressed in Programme of the this publication are the Seventh sole responsibility of the authors and do not Framework necessarily reflect the Programme of the views of the European European Union. Commission.

The EFIGE project is coordinated by Bruegel and involves the following partner organisations: Universidad Carlos III de Madrid, Centre for Economic Policy Research (CEPR), Institute of Economics Hungarian Academy of Sciences (IEHAS), Institut für Angewandte Wirtschafts- forschung (IAW), Centro Studi Luca D'Agliano (Ld’A), Unitcredit Group, Centre d’Etudes Prospectives et d’Informations Internationales (CEPII). The EFIGE partners also work together with the following associate partners: Banque de France, Banco de España, Banca d’Italia, Deutsche Bundesbank, National Bank of Belgium, OECD Economics Department. !""#$"""

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$B Annual Rate Technological Progress Industry

2.5%

Technological Progress (Model)

2.0%

1.5%

1.0% Annual Growth Rate

0.5%

0.0% 1300 1400 1500 1600 1700 1800 1900 2000 2100

Year

4 . . ( @2 .C

Annual Growth GDP per Capita

2.5% GDP per Capita Growth(Model) GDP per Capita Growth (Data England)

2.0%

1.5%

1.0% Annual Growth Rate

0.5%

0.0% 1300 1400 1500 1600 1700 1800 1900 2000 2100

Year

4 $ :/ :( ' @2 .C

$A Annual Growth Population

1.5% Population Growth (Model) Population Growth (Data England)

1.0%

0.5% Annual Growth Rate

0.0% 1300 1400 1500 1600 1700 1800 1900 2000 2100

Year

4 ! :/ ( @2 .C

Agricultural Employment Share

100.0% Agricultural Share (Model) Agricultural Share (Data England)

80.0%

60.0%

40.0% Annual Growth Rate

20.0%

0.0% 1300 1400 1500 1600 1700 1800 1900 2000 2100

Year

4 B . ) @2 .C

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2.30 Relative Price Industrial Goods (Model) Relative Price Industrial Goods (Data England)

2.00

1.70

1.40

1.10 Relative Price Industrial Good (1900=1)

0.80 1300 1400 1500 1600 1700 1800 1900 2000 2100

Year

4 A ( . : @2 .C

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1.5%

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0.5%

0.0% 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200 2300

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4 E 8. */ . 4(

Annual Rate Technological Progress Industry

2.5% Technological Progress (Benchmark) Technological Progress (kappa 10% higher) Technological Progress (phi 10% higher) 2.0%

1.5%

1.0% Annual Growth Rate

0.5%

0.0% 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200 2300

Year

4 I 8. 7

!" -

7 6 6 / %I@VTUSE7G 3AWPGVUEPI / 8. 3 . . , @ -I!C , 7 @ ->-C @ -> C+ / 56 . 5 . 6 .+ 7 56 . / . + . 56 . 3 . . / / . 56 . . / 3 . + 4 > / / / / . . 56 . 3 " . + . 56 . 3 "" D . " . 56 . 3 $A" + 7 8 + . / . . . . / 5 3+ . " . . 3 5 1 8. + ;/ 3. . . 5 3 5 5 3+ ' @$""!C . . 1 3 .. . 2 / / %I@VTUSE7G 3AWPGVUEPI+$GPSEPVT 3AW( PGVUEPI . .. E>> 3 %I@VTUSE7G 3AWPGVUEPI "" + 6 ' @$""!C #3 N 5+ 6 / . . 8. . . #8 #8 . 3 . +

- !

2 3 5 3 . 4 # 9 @$""EC )1 @ -- C 3 + / . 3 . 8. #8+ 7 / . . / . 1 . 3. 3 . 0 / . . . +

! Annual Rate Technological Progress Industry

2.5% Technological Progress (Benchmark) Technological Progress (Free Trade) 2.0%

1.5%

1.0% Annual Growth Rate

0.5%

0.0% 800 1000 1200 1400 1600 1800 2000

Year

4 > 8. * 3 1

3 1 . . . 3 . . 3 8. + 4 - / 8. 3 . 1 . . . # 1 5+ , . + 7 A$A 5 5 / . 3 . -A" 5 . . .+ 6 3 +

%I@VTUSE7G 3AWPGVUEPI . / . 3 . . .+ 7 / 3 3 . 3 # 3 . 5 . + 7 6 . 3 . 1 3 . 3 / / 5 . 1+ . 8.

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UAV 2. :+ %+ + --"+ ; ' 4 . . :/ < ( . . -> ) $#!I+

UEV 2 + $""$+ 4 ' ' #' 2 . . ; / *J #!"+

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U AV ' ,+4++ --A+ 6 :/ T . # < . . ; AA IBA#II$+

U EV J <+ --!+ 2 / ( . (/ 7 : & ; . <+ 2/ + ( + ' / >A# !$+

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U >V ' 6 + + $""B+ ( 3 . . / 8 < . . I!@$C E"I#E$-

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U$"V + $""B+ .. 4 . :/ < . . :/ -@!C !BI#!>!+

U$ V + M 3 4+ $""A+ .. . ' *3 . . . / -A B-$# A$B+

U$$V + + -> + . #) ). . . # ; . (. + ' ) 6 6 H & +

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!B U$AV 4 + $""!+ ; . & 4 . . ' 7 # ' ( . . . . * I> I-#>E+

U$EV 4 '+;+ ( )+ ->>+ ) ' 4 & % IA"# -$" 96 & (+

U$IV 4 + 9 %+ $""I+ (/ ( 7 7 . ). + ( . ( . & (+

U$>V : <+ M 3 4+ --A+ :/ ( ' + . ) 0 !IW!> -I#$ B+

U$-V : 9+ 7 + $"""+ ( . :/ 4 . 2 . . . / -" >"E#$>+

U!"V : 9+ 9+ $""$+ , ). 9 . . :/ < . . I !!# -$+

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U!$V : 3 +7+ -!$+ 4. 4. 4. . . ; +;+ ' + * +

U!!V : + . <+ --A+ . . . / >A E#!!+

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U!AV : L + ; (+ 92 (+ --$+ . 2 6 I""# >"" < . . ; A$ >>"#-"E+

U!EV ; + ./ <++ ->E+ . ' 2 4 + < . . A !$>#!!A+

U!IV ; :+ (. +'+ $""$+ )/ . . . / -$ $"A# I+

U!>V ; '+% ' ,+4++ $"""+ ) / J / + < . . ; E" > -#B +

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UB"V ; + % (++ ->A+ ) . 4 '3 (+

UB V ; + * J+ $""A+ J . +

!A UB$V ; +<+ -I-+ ' ' ( ( # / A EB!#E$+

UB!V ; ;+ -$-+ ) 3 ' . . < !- B #AI+

UBBV < . ,+ 4 + $"">+ 4 . & J 2 '. ) & +

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UBEV % + --I+ . ) :/ < . . $ @!C -!-#EB+

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UB>V *O ,+(+ $""E+ :#7 6. / . . . - E#B$+

UB-V *O ,+(+ $""!+ 4 :/ ' . 6 T . . / BB IAA#II+

UA"V * . %+ -I-+ J 0 L. . ,/ = ' 3 & (+

UA V * +)+ -E-+ & 3 ( . . ' # IA" ( + '3 '3 & (+

UA$V *#< + * 6+ ++ ->"+ ) 1 4 ' . > A#B . . ; / !! @ C I$#>$+

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UAAV + $"" + 7 . (. ( ' 9'+

UAEV 6 (+ -$>+ > ' ,/ = ; .# 3+

UAIV .% . ,+ ->$+ '. 1 . 2 ' ). ,+ .% . <+ 2/ <+;+ ( 3 + 2 & (+

UA>V 4+4+ -I$+ ( # 1 5 1 . < . . ; !$ $B #$E

UA-V . 2++ ->>+ 2 ; . ) . ,/ = '3 & (+

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!E UE V <+ ---+ . <+ + 2 . . (. 2 7 / (+

UE$V <+ J ;+#<+ $""I+ & :/ I""# >I" . +

UE!V , +'+ +(+ -I!+ 7 7 ,/ . . ; '3 '3 & (+

UEBV , +'+ 7 2+ ->-+ : ( 3 . ' . ) ' < . . ; B- >"!#!$+

UEAV 9 %+ 7 <+ $""A+ 4 9 3 ) . A"" < . . :/ " A#!B+

UEEV 9 :++(+ 3 . + <+#4+ $""$+ . . / B! B"-#B!E+

UEIV ( )+ -EA+ : * ( +

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UE-V 1/ +)+ ++ -II+ 4 ). . . ' 3 # ' . . . . BA "EA# "I-+

UI"V ) )+ -I-+ . ' / 9 :+ 2 < . . " B # AE+

UI V ). 1 + 7+ -E>+ . . :/ . ,/ = .:/#; +

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UI!V ) '+;+ % 7+ $""I+ ' . . . / -I >-# $ E+

UIBV ) + @ IIEC + 0 , ' 7 , 96 96 & (+

UIAV )8 %+*+ ->>+ . . . ( . I-"# >BE < . . ; B> > !#A"+

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!I U>"V )1 + ->-+ 9 1 7 . 4. < . . 2 9 1 !B!#A>+

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U>!V 3 <+ $""!+ ( # 4 # . K,/ + %/ ' < ; + ; 3 96 2 #2./+

U>BV J P ,+ J ;+#<+ $""E+ 7 T . 4. ) . ' ( . ' .. < .# . :/ ! -#E +

U>AV 7 *+ ->>+ ' 2 ' 2 EE"# II" ,/ = +

U>EV 7 <+:+ ->A+ 3 5 IIE# >I & 3 +

U>IV = ++ X+ M $"">+ 1 . * # :/ & 3# +

U>>V = X+ 2+<+ ; N --!+ . ' 9 ( . . . . / >! @ C $-A#!" +