Social Ties and Economic Development
Jose F. Anchorena
Carnegie Mellon University
University of Texas at Austin
December 9, 2011
We develop a parsimonious general equilibrium model where agents allocate time across three activities: production, trade, and leisure. Leisure includes time spent socializing, which economizes transaction costs. Our framework yields multiple equilibria in terms of the number of social ties and predicts that the number of social ties is positively associated with development, a relationship we observe in cross-country data. The model captures additional dimensions of data, namely: (i) increasing income inequality, but converging growth rates; (ii) an association between weak social ties and development; and (iii) an association between number of social ties and size of the transaction sector.
Number of Pages in PDF File: 53
Keywords: social capital, development, networks, transaction costs
JEL Classification: O10, D11, D23working papers series
Date posted: April 22, 2008 ; Last revised: December 10, 2011
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