RESEARCH PAPER NO. 865

MODELLING SOCIAL CAPITAL AND GROWTH

BY

YUAN K. CHOU

DECEMBER 2002

Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

This paper proposes three theoretical growth models incorporating social capital, based on varied expositions on the concept of social capital and the empirical evidence gathered to date.  In these models, social capital impacts growth by assisting in the accumulation of human capital, by affecting financial development through its effects on collective trust and social norms, and by facilitating networking between firms that result in the creation and diffusion of  business and technological innovations.  We solve for the optimum allocation of human capital or labor towards social capital formation in each model, and examine their comparative statics and transitional dynamics.

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