Neoclassical production theory and growth with unemployment: The stability issue revisited |
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Authors: | Luciano Fanti Piero Manfredi |
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Affiliation: | 1. Dipartimento di Scienze Economiche, Via Ridolfi 10, 56124 Pisa, Italy;2. Dipartimento di Statistica e Matematica Applicata all’Economia, Via Ridolfi 10, 56124 Pisa, Italy |
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Abstract: | A common belief in economic growth theory is that the instability of the balanced growth path of models based on a non-neoclassical production theory, such as the Harrod–Domar or Goodwin-type models, may be removed by introducing neoclassical technology and substitutability between factors. This does not need to be true. As shown in this paper, Solow-type models with sluggishly adjusting, non-market-clearing, real wages and endogenous fertility may suffer instability. Not only: instability may be favoured by too strong a degree of neoclassical substitution in the economy. |
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