Marvin Goodfriend and John McDermott
Long-term economic development involves four fundamental processes: the exploitation of increasing returns to specialization, the transition from household to market production, knowledge and human capital accumulation, and industrialization. In this paper, we integrate these processes into a coherent framework for thinking about economic history. Pre-industrial development is driven by increasing returns to specialization made possible by a growing population. Increasing specialization eventually activates a learning technology and initiates industrial growth, which carries the economy to a fully market-based balanced growth path. Among other things, we attribute a role to population and market size that is consistent with the evidence.
Our Research Focus: Economic Growth and Business Cycles