Abstract
Links between social capital, human capital, and product imitation are studied in an overlapping generations model of economic growth with endogenous time allocation. Social capital promotes imitation and there is a two-way interaction between imitation and human capital. Building social capital (which brings direct utility) requires time and access to infrastructure. Because life expectancy is endogenously related to human capital, time allocation between market work and social capital accumulation is also endogenously determined. The analysis highlights a fundamental trade-off between learning externalities and the life cycle–time allocation effect. The model is calibrated for a low-income country. Numerical experiments show that a policy that helps to promote social capital accumulation may be highly effective to foster economic growth, even if it involves offsetting cuts in government spending on education. Offsetting cuts in infrastructure investment, however, may entail significant dynamic trade-offs.
Highlights
The role of social capital in economic growth and development has attracted renewed interest among researchers and policymakers
It can be established that an autonomous increase in life expectancy raises the savings and time allocated to market work, and reduces time allocated to social capital accumulation
The last effect is the direct consequence of the time constraint; given that time allocated to schooling is fixed, the increase in time allocated to market work requires a reduction in time that individuals devote to social capital accumulation
Summary
The role of social capital in economic growth and development has attracted renewed interest among researchers and policymakers. In the model each agent faces an endogenous trade-off between allocating time to building social capital, which promotes imitation, as noted earlier, and market work. This is akin to the analysis in Smulders and Beugelsdijk (2004), where agents have a preference for socializing, which they trade off against material well-being. Because labor supply is endogenous, policies aimed at promoting the accumulation of social capital may be offset by changes in individual time allocation, and decrease the rate of economic growth. Given an overall time constraint, all else equal time allocated to social capital accumulation by individuals will need to fall This could reduce effective labor supply and offset the initial expansion in social capital–which in turn would tend to hamper growth. The final section draws together the policy implications of the analysis and offers some concluding remarks
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