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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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  1. Beugelsdijk, S. & Smulders, J.A., 2009. "Bonding and Bridging Social Capital and Economic Growth," Discussion Paper 2009-27, Tilburg University, Center for Economic Research.
  2. Ahmet Faruk AYSAN & Mustapha Kamel NABLI & Marie-Ange VÉGANZON�S-VAROUDAKIS, 2007. "Governance Institutions And Private Investment: An Application To The Middle East And North Africa," The Developing Economies, Institute of Developing Economies, vol. 45(3), pages 339-377.
  3. Beugelsdijk, Sjoerd & van Schaik, Ton, 2005. "Social capital and growth in European regions: an empirical test," European Journal of Political Economy, Elsevier, vol. 21(2), pages 301-324, June.
  4. Felix Kuber & Karl Schmedders, 2007. "Competitive Equilibria in Semi-Algebraic Economies," PIER Working Paper Archive 07-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Yamamura, Eiji & Shin, Inyong, 2010. "Heterogeneity, trust, human capital and productivity growth: Decomposition analysis," MPRA Paper 20083, University Library of Munich, Germany.
  6. Arnold, Lutz G., 1998. "Growth, Welfare, and Trade in an Integrated Model of Human-Capital Accumulation and Research," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 81-105, January.
  7. Karl-Josef Koch & Timo Trimborn & Thomas M. Steger, 2005. "Multi-Dimensional Transitional Dynamics: A Simple Numerical Procedure," Volkswirtschaftliche Diskussionsbeiträge 121-05, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  8. R. Quentin Grafton & Tom Kompas & P. Dorian Owen, 2004. "Bridging the Barriers: Knowledge Connections, Productivity, and Capital Accumulation," International and Development Economics Working Papers idec04-5, International and Development Economics.
  9. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
  10. Martin S. Chin & Yuan K. Chou, 2004. "Modelling Social Infrastructure and Economic Growth," Australian Economic Papers, Wiley Blackwell, vol. 43(2), pages 136-157, 06.
  11. Marie-Ange Veganzones, 2006. "Governance Institutions and Private Investment : An application to the Middle East and North Africa," Post-Print hal-00070860, HAL.
  12. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2010. "Civic Capital as the Missing Link," NBER Working Papers 15845, National Bureau of Economic Research, Inc.
  13. Breuer, Janice Boucher & McDermott, John, 2009. "Respect, responsibility, and production," MPRA Paper 18111, University Library of Munich, Germany.
  14. Berggren, Niclas & Jordahl, Henrik, 2005. "Free to Trust? Economic Freedom and Social Capital," Working Paper Series 2005:2, Uppsala University, Department of Economics.
  15. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
  16. Salinas-Jimenez, M del Mar & Salinas-Jimenez, Javier, 2007. "Corruption, efficiency and productivity in OECD countries," Journal of Policy Modeling, Elsevier, vol. 29(6), pages 903-915.
  17. Cuesta, J.D., 2004. "From economicist to culturalist development theories: how strong is the relation between cultural aspects and economic development?," ISS Working Papers - General Series 19159, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  18. Claudia Williamson, 2009. "Informal institutions rule: institutional arrangements and economic performance," Public Choice, Springer, vol. 139(3), pages 371-387, June.
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