Phase transitions as a cause of economic development

Abstract

Economic development spans centuries and continents. Underlying infrastructural causes of development, such as institutions and networks, are subject to slow but persistent change. Accumulated infrastructural changes eventually become so substantial that they trigger a phase transition. Such transitions disrupt the prior conditions for economic activities and network interdependencies, requiring radically transformed production techniques, organizations and location patterns. The interplay of economic equilibria and structural changes requires a theoretical integration of the slow time scale of infrastructural change and the fast time scale of market equilibration. This paper presents a theory that encompasses both rapidly and slowly changing variables and illustrates how infrequent phase transitions caused four logistical revolutions in Europe over the past millennium.