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The Stability Properties of Goodwin’s Growth Cycle Model with a Variable Elasticity of Substitution Production Function

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  • Nikolaos Rodousakis

Abstract

This article investigates the stability properties of the well-known Goodwin’s growth cycle model, when a production function with variable elasticity of substitution is considered. It is found that the latter amounts to the introduction of a dampening effect; hence, the equilibrium becomes locally asymptotically stable. However, if we assume endogenous labour productivity growth, this is not the only possible solution; the model can exhibit converging or diverging oscillations as well as closed concentric trajectories depending on the assumed opposite effects of ‘elasticity of (factor) substitution’ and ‘endogenous labour productivity growth’.

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  • Nikolaos Rodousakis, 2014. "The Stability Properties of Goodwin’s Growth Cycle Model with a Variable Elasticity of Substitution Production Function," Studies in Microeconomics, , vol. 2(2), pages 213-223, December.
    • Handle: RePEc:sae:miceco:v:2:y:2014:i:2:p:213-223
    DOI: 10.1177/2321022214545249
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    References listed on IDEAS

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