Growth and Human Capital: A Network Approach

42 Pages Posted: 16 Mar 2015

See all articles by Tiago Cavalcanti

Tiago Cavalcanti

University of Cambridge

Chryssi Giannitsarou

University of Cambridge - Faculty of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: March 2015

Abstract

We study the interactions and dynamics of human capital, growth and inequality by explicitly embedding networks into a standard endogenous growth model with overlapping generations. The human capital of a household depends on investment in education and on average human capital of the household's network neighborhood. Network structure is crucial for both the long run outcomes and the transition of otherwise identical economies. Network cohesion above a certain threshold eliminates differences across households and leads to long run equality, while below the threshold, inequality is high and persists more often. During transition, (i) high overall growth is achieved when the network has high degree centralization and the most degree central node has high initial human capital and (ii) high individual household growth is achieved when the household has low human capital relative to its neighborhood and is located in a neighborhood that has high average human capital relative to the whole economy.

Keywords: growth, human capital, inequality, local externality, networks

JEL Classification: D62, D85, E24, O40

Suggested Citation

Cavalcanti, Tiago and Giannitsarou, Chryssi, Growth and Human Capital: A Network Approach (March 2015). CEPR Discussion Paper No. DP10492. Available at SSRN: https://ssrn.com/abstract=2579242

Tiago Cavalcanti (Contact Author)

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Chryssi Giannitsarou

University of Cambridge - Faculty of Economics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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