The Roots of the Industrial Revolution - Institutions or (Socially Embedded) Technological Know-How?

We reassess the literature of growth by looking at the evolution of the European economy from around 1200 to 1900. Employing a comprehensive dataset for the European continent that includes geographic and climate features (1200-1800), urbanization data (1200-1800), per capita income data in the second half of the 19th century, location of proto-industrial centers (textile and metal sectors from 1300 to the Industrial Revolution), political borders and political institutions, we estimate the geographic, economic and political covariates of urbanization (commonly used as a proxy for per capita income) and 19th-century per capita income. Taking an instrumental variables approach, exploiting random climatic variation across time and space in the propensity of territory to support large, urban, populations, we show that the process of economic take-off (and of a growing economic divergence across the European continent) was caused by the emergence and growth of cities and urban clusters in an European north-south corridor that broadly runs from southern England to northern Italy. In contrast to previous findings in the institutionalist literature, we then show that fortunes of parliamentary institutions in early modern Europe played a small part in the success of the industrial revolution and the distribution of income across the continent in late 19th century. Rather, industrialization took place in those territories that had a strong proto-industrial base, often regardless of the absence of executive constraints (in the two centuries preceding the industrial revolution)