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Chaotic Economic Dynamics$
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Richard M. Goodwin

Print publication date: 1990

Print ISBN-13: 9780198283355

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198283350.001.0001

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The Structural and Dynamical Instability of the Modern Economy

The Structural and Dynamical Instability of the Modern Economy

Chapter:
(p.56) 5 The Structural and Dynamical Instability of the Modern Economy
Source:
Chaotic Economic Dynamics
Author(s):

Richard M. Goodwin

Publisher:
Oxford University Press
DOI:10.1093/0198283350.003.0005

Addresses a weakness in Schumpeterian thought: innovation need not lead to higher output. An innovation has two opposing effects: it increases investment, thereby increasing labour demand; it also raises productivity, thereby reducing labour demand. A model is developed with three dynamic elements: quadratic investment outlay, dynamic Kahn–Keynes multiplication of output, and a specification for the rate of real wage increase. The model shows that if the real wage is sufficiently responsive, innovation can increase output permanently. The chapter concludes with a Rössler model designed to model short and long waves as a chaotic growth‐oscillator.

Keywords:   dynamic instability, innovation, investment, labour demand, long wave theory, output, productivity, Rössler model, Schumpeter, wage

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