From Tradition to Modernity: Economic Growth in a Small World
Abstract
This paper introduces the Small World model (Watts and Strogatz, Nature, 1998) into the theory of economic growth and investigates how increasing economic integration affects firm size and effciency, norm enforcement, and aggregate economic performance. When economic integration is low and local connectivity is high, informal norms control entrepreneurial behavior and more integration mainly improves search for effcient investment opportunities. At a higher level of economic integration neighborhood enforcement deteriorates and formal institutions are needed to keep entrepreneurs in check. A gradual take-off to perpetual growth is explained by a feedback effect from investment to the formation of long-distance links and the diffusion of knowledge. If formal institutions are weak, however, the economy does not take off but stagnates at an intermediate income level. Structurally, the equilibrium of stagnation differs from balanced growth by the presence of relatively many small firms of low productivity.Download Info
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Paper provided by Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover with number dp-478.
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Length: 32 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:han:dpaper:dp-478
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Related research
Keywords: modernization; economic integration; firm size; norms; networks; knowledge spillovers; growth;Find related papers by JEL classification:
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-29 (All new papers)
- NEP-CSE-2011-08-29 (Economics of Strategic Management)
- NEP-CWA-2011-08-29 (Central & Western Asia)
- NEP-DGE-2011-08-29 (Dynamic General Equilibrium)
- NEP-ENT-2011-08-29 (Entrepreneurship)
- NEP-FDG-2011-08-29 (Financial Development & Growth)
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As found by EconAcademics.org, the blog aggregator for Economics research:- More on institutions and growth
by Economic Logician in Economic Logic on 2011-09-15 14:41:00
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