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Modelling Social Infrastructure and Growth

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  • Martin S. Chin
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    Abstract

    This paper examines the impact of social infrastructure on economic growth by endogenously modelling its provision by a public sector in the context of a multi-sector growth model. Our model shows that not only is social infrastructure positively correlated with output per worker, countries that are more efficient in providing the infrastructure are able to limit the level of diversion while those that are not are unable to do so. Next, we augment the model with human capital which is endogenously determined by the education sector. The extended model indicates a positive link between the education and public sectors such that a shock to one of these sectors affects not only the immediate sector but the other as well. We also show that favourable social infrastructure can have positive long-term growth effects when the Lucas (1988) specification for the accumulation of human capital is adopted. Our results suggest that emphasis should be placed on raising the efficiency level of the public sector and productivity level of the education sector. Finally, the best way of combating diversion is to encourage individuals to adopt a higher degree of aversion to it.

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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-02/839.pdf
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    Bibliographic Info

    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 839.

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    Length: 34 pages
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:mlb:wpaper:839

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    Web page: http://www.economics.unimelb.edu.au
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    Related research

    Keywords: Economic Growth; Human Capital; Social Infrastrncture;

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    References

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    1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
    2. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
    3. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
    4. Weingast, Barry R, 1995. "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 1-31, April.
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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