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Path dependence and stagnation in a classical growth model

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  • Thomas R Michl
  • Daniele Tavani

Abstract

This paper embeds a technical progress function in a classical growth model and studies the effects of permanent changes in parameters and temporary shocks such as pandemics. Technical change is driven by dynamic economies of scale and responds to distributional forces: the wage share regulates labour-saving technical change and employment regulates its capital-using bias. The model features path dependence in the employment-population rate and the output-capital ratio. Population growth and distribution can respond to the employment rate. Interpreted through the model, secular stagnation under neoliberal capitalism has been driven by a combination of diminished investment and reduced worker bargaining power more than by slower technical change and population growth. A temporary unfavourable shock to the output-capital ratio will permanently reduce the employment rate. In the fully endogenous model, this will increase the profit share and reduce the rates of technical change, capital accumulation, and population growth.

Suggested Citation

  • Thomas R Michl & Daniele Tavani, 2022. "Path dependence and stagnation in a classical growth model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(1), pages 195-218.
    • Handle: RePEc:oup:cambje:v:46:y:2022:i:1:p:195-218.
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    File URL: http://hdl.handle.net/10.1093/cje/beab045
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    Cited by:

    1. Rada, Codrina & Tavani, Daniele & von Arnim, Rudiger & Zamparelli, Luca, 2023. "Classical and Keynesian models of inequality and stagnation," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 442-461.
    2. Manuel David Cruz & Daniele Tavani, 2022. "Secular Stagnation: A Classical-Marxian View," Working Papers PKWP2229, Post Keynesian Economics Society (PKES).
    3. Codrina Rada & Ansel Schiavone & Rudiger von Arnim, 2022. "Goodwin, Baumol & Lewis: How structural change can lead to inequality and stagnation," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 1070-1093, November.

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