Neoclassical Growth and the 'Trivial' Steady State
AbstractIf capital is an essential input, the neoclassical growth model has a steady state with zero capital. From this, one is inclined to conclude that an economy starting without capital can never grow. We challenge this view and claim that, if the production function satisfies the Inada conditions, 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, even without capital. When it happens, the take-off is spontaneous; there is no causality.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4943.
Date of creation: Mar 2005
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Other versions of this item:
- Hakenes, Hendrik & Irmen, Andreas, 2008. "Neoclassical growth and the "trivial" steady state," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1097-1103, September.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-DEV-2005-06-14 (Development)
- NEP-DGE-2005-06-14 (Dynamic General Equilibrium)
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