Human and Social Capital

What is it about?

This paper develops a two-period Overlapping Generations (OLG) model of endogenous growth in which a two-way relationship between social capital and human capital is studied. In order to illustrate the impact of public policies, the model is calibrated using the data for a low-income country, India and a sensitivity analysis is reported under different parameter values. Based on the numerical analysis, this paper focuses on possible trade-offs in the allocation of government spending between two productive components, that is, social capital-related activities and education. The results of this paper show that an increase in the share of public spending on social capital-related activities through a cut in spending on education or vice versa entails trade-offs. However, the trade-off fades away and the net impact on long-run growth turns out to be positive for different parameter values in the case where a higher share of spending on education is financed by a cut in spending on social capital-related activities but a policy in improving social capital accumulation at the expense of education is always detrimental to long-run growth.

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Why is it important?

This paper develops a two-period Overlapping Generations (OLG) model of endogenous growth in which a two-way relationship between social capital and human capital is studied. In order to illustrate the impact of public policies, the model is calibrated using the data for a low-income country, India and a sensitivity analysis is reported under different parameter values.

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