Inclusive Institutions and Economic Development: How Local Institutions Shaped the Geography of the Industrial Revolution

Abstract

The paper studies the relationship between local institutional and economic development in England up to the Industrial Revolution. First, we document a negative relationship between economic growth during the 19th century and economic development in the medieval and modern periods, from the 11th to 17th century. Second, we show that while inclusive institutions developed in commercially prominent cities, these cities failed to adopt the new industrial technologies during the 19th century. We argue that, while inclusive institutions were complementary to early modern commercial development, these were detrimental to industrial development. Inclusive institutions contributed to the creation of local grass-rooted organizations that enabled workers threatened by labor mechanization to resist technological adoption. Higher resistance to technological adoption, in turn, resulted in the relocation of economic activities away from traditional centers of production.