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DOI: 10.23952/cot.2027.9
Received August 14, 2025; Accepted January 18, 2026; Published online August 7, 2026
Abstract. This paper examines the relationship between dynamic stability and the presence of Giffen goods in a standard two-sector growth model. We show that a steady state may take the form of a saddle point even when a labor intensive good becomes a Giffen good at the steady state. The results highlight that the stability of equilibria is shaped not by the presence of Giffen behavior per se, but by the strength of the income effect associated with inferior goods. When this effect is sufficiently large, steady states can become unstable; otherwise, stability is preserved. These findings clarify the conditions under which Giffen behavior interacts with dynamic equilibria, and emphasize the central role of income elasticity in determining stability outcomes.
How to Cite this Article:
K. Iwasa, K. Nishimura, Steady states with giffen goods in the dynamic two-sector model, Commun. Optim. Theory 2027 (2027) 9.