Neoclassical Growth and the 'Trivial' Steady State
University of Hannover; Max Planck Institute for Research on Collective Goods
University of Luxembourg - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Munich
CEPR Discussion Paper No. 4943
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.
Number of Pages in PDF File: 15
Keywords: Capital accumulation, industrializtion, neoclassical growth model
JEL Classification: N60, O11, O14, O41working papers series
Date posted: May 25, 2005
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 1.016 seconds