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Neoclassical Growth and the 'Trivial' Steady State

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Author Info
Hakenes, Hendrik
Irmen, Andreas

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Abstract

If 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4943.

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Date of creation: Mar 2005
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Handle: RePEc:cpr:ceprdp:4943

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Related research
Keywords: capital accumulation; industrializtion; neoclassical growth model;

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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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  1. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December. [Downloadable!] (restricted)
  2. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October. [Downloadable!] (restricted)
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