Globalization and the Industrial Revolution

Abstract

This paper argues that trade specialization played an indispensable role in supporting the Industrial Revolution, allowing the economy to shift resources to the manufacture without facing food and raw materials shortage. In our arti cial economy, there are two sectors agriculture and manufacture and the economy is initially closed and under a Malthusian trap. In this economy the industrial revolution entails a transition towards a dynamic Heckscher-Ohlin economy. The model reproduces the main stylized facts of the transition to modern growth and globalization. We show that two-sectors closed-economy models cannot explain the fall in the value of land relative to wages observed in the 19th century and that the transition in this case is much longer than that observed allowing for trade.