Diffusion Dynamics and Creative Destruction in a Simple Classical Model

Abstract

The article explores the impact of the diffusion of new methods of production on output and employment growth and income distribution within a Classical one-sector framework. Disequilibrium paths are studied analytically and in terms of simulations. Diffusion by differential growth affects aggregate dynamics through several channels. The analysis reveals the non-steady nature of economic change and shows that the adaptation pattern depends both on the innovation's factor-saving bias and on the extent of the bias, which determines the strength of the selection pressure on non-innovators. The typology of different cases developed shows various aspects of Schumpeter's concept of creative destruction.