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Steady States with Giffen Goods in the Dynamic Two-Sector Model

Author

Listed:
  • Kazumichi Iwasa

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

  • Kazuo Nishimura

    (Research Institute for Economics and Business Administration and Center for Computational Social Science, Kobe University, JAPAN)

Abstract

This paper examines the relationship between dynamic stability and the presence of Giffen goods in a standard two-sector growth model. We show that a steady state may take the form of a saddle point even when a labor-intensive good becomes a Giffen good at the steady state.The results highlight that the stability of equilibria is shaped not by the presence of Giffen behavior per se, but by the strength of the income effect associated with inferior goods. When this effect is suffciently large, steady states can become unstable; otherwise, stability is preserved. These findings clarify the conditions under which Giffen behavior interacts with dynamic equilibria, and emphasize the central role of income elasticity in determining stability outcomes.

Suggested Citation

  • Kazumichi Iwasa & Kazuo Nishimura, 2026. "Steady States with Giffen Goods in the Dynamic Two-Sector Model," Discussion Paper Series DP2026-07, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2026-07
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2026-07.pdf
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    References listed on IDEAS

    as
    1. Plott, Charles R., 2008. "Principles of Market Adjustment and Stability," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 26, pages 214-227, Elsevier.
    2. Eric W. Bond & Kazumichi Iwasa & Kazuo Nishimura, 2012. "The dynamic Heckscher–Ohlin model: A diagrammatic analysis," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 197-211, June.
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    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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