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Social Infrastructure and the Preservation of Physical Capital: Equilibria and Transitional Dynamics

Author

Listed:
  • Helena Soares

    (ISCTE-IUL, Business School, Quantitative Methods Department and BRU-IUL)

  • Tiago Neves Sequeira

    (Universidade da Beira Interior, Management and Economics Department and CEFAGE - UBI)

  • Pedro Macias Marques

    (University of Évora, CIMA ? Research Centre in Mathematics and Applications)

  • Orlando Gomes

    (ISCAL - Lisbon Polytechnic Institute and BRU-IUL)

  • Alexandra Ferreira-Lopes

    (ISCTE-IUL, Business School, Department of Economics and BRU-IUL and CEFAGE - UBI)

Abstract

We study the mechanisms according to which social infrastructure influences the preservation of physical capital and, consequently, economic growth. The model considers that social infrastructure is a specific type of human capital, which acts in order to preserve already existing physical capital, by, e.g., reducing the incentive for rent seeking or corruption. Using an innovative methodology in economics, the Gröbner bases, we study the equilibrium of our model and conclude for the existence of two feasible steady-states or of unicity according to different combinations of parameters, highlighting a trade-off between consumption and production on one hand and social infrastructure and physical capital accumulation, on the other. We also present sufficient conditions for saddle-path stability. Finally, we describe transitional dynamics and calculate welfare effects from which we show that strengthening social infrastructure increases welfare.

Suggested Citation

  • Helena Soares & Tiago Neves Sequeira & Pedro Macias Marques & Orlando Gomes & Alexandra Ferreira-Lopes, 2012. "Social Infrastructure and the Preservation of Physical Capital: Equilibria and Transitional Dynamics," Working Papers Series 2 12-04, ISCTE-IUL, Business Research Unit (BRU-IUL).
    • Handle: RePEc:isc:iscwp2:bruwp1204
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    More about this item

    Keywords

    Social Infrastructure; Physical Capital Depreciation; Endogenous Growth; Equilibrium Multiplicity; Gröbner Bases;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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