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Institutions and social capital: incentives for economic growth Harnessing education and technology to end poverty Nicolò Antonio Andreula Università commerciale.

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Presentation on theme: "Institutions and social capital: incentives for economic growth Harnessing education and technology to end poverty Nicolò Antonio Andreula Università commerciale."— Presentation transcript:

1 Institutions and social capital: incentives for economic growth Harnessing education and technology to end poverty Nicolò Antonio Andreula Università commerciale Luigi Bocconi, Milan, Italy

2 How to achieve economic growth? Solow model: economic growth as a function of Human and physical capital Y=Y(H,K) This theory can fit the most famous episodes of economic growth, but it has also given disappointing results to the economists who tried to apply it blindly

3 Investing in Physical and Human capital where has all the education gone? (Source: Pritchett 1997) 1960: Physical Capital savings in Latin America were higher than in East-Asia, while in Africa…

4 The importance of productivity: Y=Y (K,H,A) i.e. Y= (K) a (AH) 1-a

5 Productivity and output per worker source: Hall and Jones

6 What are productivity and outcome per capita related to? Acemoglu - INSTITUTIONS: political and civic environment Hall and Jones - SOCIAL INFRASTRUCTURE: Anti-diversion policies, trade openness, ethnolinguistic fractionalization, religious affiliation, population density, density of economic activity

7 Reforming Institution: a matter of Incentives Deng Xiao Ping (China, 1978): House Responsability System improving productivity (+19.8% in six years) by making individual households residual claimants on their output. M. Yunus: Grameen Bank’s group lending scheme Aggregate borrowers to deal with moral hazard and adverse selection (repayment rates over 90% even without collaterals)

8 From GDP to welfare: improving institutional performance with education Besley and Burgess (focus on India) : higher NEWSPAPER CIRCULATION yields, ceteris paribus, higher government-aid Amartya Sen: in the PUBLIC ACTION “what one gets is not independent from what one seeks and demands”.

9 Rethinking the School System Educate pupils as aware citizens, not only as workers Provide theoretical basis to anti-diversion policies Soften the “ethnolinguistic fractionalization effect” (highly correlated with corruption- P.Mauro, 1995) by teaching tolerance Empower public and civic action Raise social capital levels

10 Social Capital: Trust and Civic Cooperation Positive and significant correlation with GDP growth and investment in Human and Physical capital (Knack and Kneefer) Higher return on education Enforcement of contracts Soften the etno-linguistic fractionalization effect Stronger incentives to innovation and accumulation Better acces to credit for the poor Meritocracy instead of personal ties

11 SK to Break a vicious cycle? lack of communication and mutual confidence fewer interactions among different people Fewer incentives for economic activity and cultural exchange Less investment in schooling and Human Capital Ethnolingustic fractionalzation effect Worse Social Infrastructure SOCIAL CAPITAL

12 How to raise SK levels? Hardin: “conditional cooperation”: CC depends on T, not viceversa Conditional Cooperation Trust First effect of expectations Only indirectly… Agents will not cheat only if they expect others to do the same.

13 Limited Role of Schooling in the short run Education could surely instill civic virtue into pupils. However (as shown by Kruger and Lindahl) it is unlikely results will be seen within the next years But if internet offers us an opportunity to reward people’s trust and cooperation in economic transaction, SK will definitely raise shortly.

14 E-Business for Social Capital ONLINE MARKETPLACES: sell and buy through auction-style and fixed-price trading FEEDBACK FORUM: information about past and future partners: no gain in cheating, trust-worthiness has a payoff “NEUTRAL CONTACTS” soften ethnical contrasts: in the web everyone is considered and judged only upon his or her behaviour

15 Only a Net Utopia? I don’t think so Even “normal” economy could benefit from e- business: an external shock to set out an endogenous mechanism. VIRTUOUS CYCLE! investment in human and physical capital rise in traditional domestic commerce people understand the payoff of dealing with unknown partners Higher levels of T and CC Rise in productivity and expectations

16 CONCLUSIONS Quisque faber fortunae suae Kantian and businessman perspective Human and physical capital shouldn’t be ends, but also means to improve and raise social capital. Incentives for and from informatics


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