Path Dependence in Neoclassical Economic Growth Theory

Abstract

technical solutions. The analysis of historical conditions is almost entirely carried out with the use of qualitative methods, since the subject of the research is non-formalized. In addition, the theoretical basis for conducting relevant empirical research is still missing. As a result of the development of complexity economics in recent years, numerous dynamic features of complex economic systems can be examined with the application of quantitative methods which, in eect, strengthens the bonds between theory and practice. Rare exceptions include path dependence relations. The aim of this article is to fill this gap and to create a theoretical basis for quantitative research on historical conditions in economics. This is a necessary condition for undertaking empirical research. The theoretical search started with the Keynesian model of the Samuelson‐Hicks trade cycle, to demonstrate that conventional economics completely omits the most interesting path-dependence cases. It turns out that only the neoclassical model of economic growth, taking into account two power laws, provides appropriate dynamic characteristics for a full description of path dependence relations. Therefore, appropriate theoretical bases can be provided only by complexity economics. It may seem that, in this work, the dependence on history is restricted to two successive time steps in the case of the Samuelson‐Hicks model and a single step in the neoclassical model of economic growth by Day. However, it examines an ordered path dependence, where events are chronologically ordered and the impact of earlier events on the later ones occurs through intermediary events. It should be remembered that events are constantly aected by environmental stimuli that are reflected not only in initial conditions, but also in the values of the parameters for all periods. Thus, it is not a case of short-term memory.