Entrepreneurship and the Cambridge result: Schumpeter meets Pasinetti

João Ricardo Faria

Chapter 4 in Income Distribution, Economic Growth and Unemployment, 2025, pp 91-98 from Edward Elgar Publishing

Abstract: The Cambridge result (also known as the Pasinetti paradox) says that the steady-state rate of return of capital, , depends only on the rate of growth n and on the marginal propensity to save of capitalists, , such that . This result is remarkable because it is completely independent of the workers’ saving propensity, . In the original framework, capitalists only reinvest their savings, which is a mechanical and unrealistic approach. Since capitalists are entrepreneurs responsible for technological innovations, we consider these activities à la Schumpeter in the model. The baseline model is enriched with the dynamics of technological innovations. Surprisingly, the Pasinetti paradox holds true.

Keywords: Schumpeterian entrepreneurship; Technological innovations; Kaldor-Pasinetti two-class model (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035342556
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