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

  • 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)

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.

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Paper provided by ISCTE-IUL, Business Research Unit (BRU-IUL) in its series Working Papers Series 2 with number 12-04.

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Date of creation: 15 Jul 2012
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Handle: RePEc:isc:iscwp2:bruwp1204
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