Diffusion Dynamics and Creative Destruction in a Simple Classical Model

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.