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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)

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.

Suggested Citation

  • Stefan D. Josten, 2013. "Middle-Class Consensus, Social Capital And The Fundamental Causes Of Economic Growth And Development," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(1), pages 1-26, March.
  • Handle: RePEc:jed:journl:v:38:y:2013:i:1:p:1-26
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    References listed on IDEAS

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    Cited by:

    1. Elzbieta Janton-Drozdowska & Maria Majewska, 2015. "Social Capital As A Key Driver Of Productivity Growth Of The Economy: Across-Countries Comparison," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 10(4), pages 61-83, December.

    More about this item

    Keywords

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

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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