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Federal Reserve Bank of Richmond
Working Paper
Early development
Marvin Goodfriend
John McDermott
Abstract

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.


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Marvin Goodfriend & John McDermott, Early development, Federal Reserve Bank of Richmond, Working Paper 94-02, 1994.
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Keywords: Economic development
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