THE DYNAMICS OF SMITHIAN GROWTH

This paper analyzes the evolution of an economy where growth is driven by increased specialization caused by the geographical expansion of m arkets. It proves that such Smithian growth exhibits generic threshold behavior. Below a critical density of transport linkages, the economy is split into isolated local markets with limited specialization. Abo ve the critical density, these markets begin to fuse into a large, eco nomywide market causing growth to accelerate. This allows an explicit test of the consensus among historians of Sung dynasty China that the economic revolution during that period was a result of commercializati on caused by the creation of a national waterway network.