Social Capital, Product Imitation and Growth with Learning Externalities

Links between social capital, human capital, and product imitation are studied in an overlapping generations model of economic growth with endogenous time allocation. Social capital promotes imitation and there is a two-way interaction between imitation and human capital. Building social capital (which brings direct utility) requires time and access to infrastructure. Because life expectancy is endogenously related to human capital, time allocation between market work and social capital accumulation is also endogenously determined. The analysis highlights a fundamental trade-off between learning externalities and the life cycle–time allocation effect. The model is calibrated for a low-income country. Numerical experiments show that a policy that helps to promote social capital accumulation may be highly effective to foster economic growth, even if it involves offsetting cuts in government spending on education. Offsetting cuts in infrastructure investment, however, may entail significant dynamic trade-offs.