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Social Networks and the Process of "Globalization"

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  • Georg Duernecker
  • Fernando Vega-Redondo

Abstract

We propose a stylised dynamic model to understand the role of social networks in the phenomenon we call "globalization." This term refers to the process by which even agents who are geographically far apart come to interact, thus being able to overcome what would otherwise be a fast saturation of local opportunities. A key feature of our model is that the social network is the main channel through which agents exploit new opportunities. Therefore, only if the social network becomes global (heuristically, it "reaches far in few steps") can global interaction be steadily sustained. To shed light on the conditionsunder which such a transformation may, or may not, take place is the main objective of the paper. One of the main insights arising from the model is that, in order for the social network to turn global, the economy needs to display a degree of \geographical cohesion" that is neither too high (for then global opportunities simply do not arise) nor too low (then the meeting mechanism displays too little structure for the process to take off). But if globalization does materialize, we show that it is a robust state of affairs that often arises abruptly as key parameters change. This occurs, in particular, as the rate of arrival of ideas rises, or when there is a high enough increase in the range at which the network transmits information.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2012/25.

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Date of creation: 2012
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Handle: RePEc:eui:euiwps:eco2012/25

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Keywords: D83; D85; C73; O17; O43;

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  1. Raja Kali & Javier Reyes, 2007. "The architecture of globalization: a network approach to international economic integration," Journal of International Business Studies, Palgrave Macmillan, vol. 38(4), pages 595-620, July.
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  4. Spagnolo, Giancarlo & Lippert, Steffen, 2004. "Networks of Relations," Working Paper Series in Economics and Finance 570, Stockholm School of Economics, revised 03 May 2005.
  5. Karlan, Dean & Mobius, Markus & Rosenblat, Tanya & Szeidl, Adam, 2009. "Trust and Social Collateral," Staff General Research Papers 13026, Iowa State University, Department of Economics.
  6. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  7. Giorgio Fagiolo & Javier Reyes & Stefano Schiavo, 2007. "The Evolution of the World Trade Web," LEM Papers Series 2007/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  8. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages F22-F49, 02.
  9. Avinash Dixit, 2003. "Trade Expansion and Contract Enforcement," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1293-1317, December.
  10. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
  11. Matthew Haag & Roger Lagunoff, 1999. "Social Norms, Local Interaction, and Neighborhood Planning," Game Theory and Information 9907004, EconWPA.
  12. Fernando Vega Redondo, 2002. "Building Up Social Capital In A Changing World," Working Papers. Serie AD 2002-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  13. Bisin, A. & Verdier, T., 1997. "The Economics of Cultural Transmission and the Dynamics of Preferences," DELTA Working Papers 97-03, DELTA (Ecole normale supérieure).
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