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Something out of Nothing? Neoclassical Growth and the ‘Trivial’ Steady State

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Author Info
Hendrik Hakenes ()
Andreas Irmen ()

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Abstract

A common perception about the neoclassical growth model is that an economy devoid of capital cannot evolve to strictly positive levels of output if capital is essential. We challenge this view by positing a broad class of production functions, encompassing the neoclassical production function, that—surprisingly—show that a take-off is possible even though the initial capital stock is zero and capital is essential. Since the marginal product of capital is initially infinite, the “trivial” steady state becomes so unstable that the solution to the equation of motion involves the possibility of a take-off. When it happens, the take-off is spontaneous: there is no causality, not even randomness.

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File URL: http://www.cesifo-group.de/DocCIDL/cesifo1_wp1671.pdf
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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1671.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1671

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Related research
Keywords: capital accumulation; neoclassical growth model;

Find related papers by JEL classification:
N60 - Economic History - - Manufacturing and Construction - - - General, International, or Comparative
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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