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Middle-Class Consensus, Social Capital And The Fundamental Causes Of Economic Growth And Development

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  • STEFAN D. JOSTEN

    ()
    (Federal University Munich, Germany)

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    Abstract

    This paper analyzes a heterogeneous-agents endogenous-growth model incorporating both transaction costs and social capital. An individual can either become an active part of the society¡¯s middle-class networks of trust and mutual co-operation, thus making a positive contribution to overall social capital. Alternatively, the individual can stay socially disintegrated and free-ride on the community¡¯s social capital. Due to the existence of asymmetric information, agents face a moral-hazard problem on the credit market which gives rise to transaction costs and can be alleviated by private, governmental or social governance structures. An increase in inequality and shrinking of the middle class depresses the community¡¯s social capital, which, in turn, weakens the informal social governance system and increases economy-wide transaction costs. As a result a more unequal distribution lowers the economy¡¯s growth rate.

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    Bibliographic Info

    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 38 (2013)
    Issue (Month): 1 (March)
    Pages: 1-26

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    Handle: RePEc:jed:journl:v:38:y:2013:i:1:p:1-26

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    Related research

    Keywords: Social Capital; Inequality; Middle Class; Economic Growth; Distribution;

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    1. Michael Lobsiger & Marc Zahner, 2012. "Institutions And Economic Development: Disentangling The Role Of Contracting And Property Rights Institutions," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(2), pages 1-34, June.
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    13. Easterly, William, 2001. " The Middle Class Consensus and Economic Development," Journal of Economic Growth, Springer, vol. 6(4), pages 317-35, December.
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    15. Shahbaz, Muhammad & Islam, Faridul, 2011. "Financial development and income inequality in Pakistan: An application of ARDL approach," MPRA Paper 28222, University Library of Munich, Germany.
    16. Tobias Broer, 2007. "Emerging Market Lending: Is Moral Hazard Endogenous?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(2), pages 41-67, December.
    17. Ferrary, Michel, 2003. "Trust and social capital in the regulation of lending activities," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 31(6), pages 673-699.
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