Path dependence and stagnation in a classical growth model

Thomas Michl and Daniele Tavani

Cambridge Journal of Economics, 2022, vol. 46, issue 1, 195-218

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.

Keywords: Kaldor-Verdoorn Law; Hysteresis; Technical progress function; Wage-led growth; Secular stagnation; COVID-19; Pandemics (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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