Cover: Social Capital, Technology Diffusion and Sustainable Growth in the Developing World

Social Capital, Technology Diffusion and Sustainable Growth in the Developing World

Published 2000

by David Robalino

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One of the topics that has emerged during the last decade in the policy agenda of national governments and international organizations is the design of policies that seek long-term economic growth while improving and sustaining the environment. The analysis of this type of policies is usually based on macroeconomic models which link changes in policy instruments (e.g., fiscal policy, pollution taxes, carbon permits, energy subsidies) to some outcome measure such as aggregate output or consumption. Critical assumptions within these models are related to the dynamics of technology-related-variables, such as total factor productivity, or the carbon intensity of the economy. Usually, these dynamics are defined exogenously, or endogenized by formalizing the effects of changes in input prices or R&D investments. Nonetheless, the microprocess of technology adoption, where decentralized heterogeneous economic agents interact and share information about the dynamics of the economy and the characteristics of new technologies, has been always ignored. Yet, it is this process which is behind the diffusion of new technologies and ultimately the dynamics of macro variables such as the carbon intensity of the economy.

Ignoring social interactions and learning is understandable in order to keep macroeconomic models manageable. If modeling these process does not contribute significantly to a better representation of the economy, there is not justification to bear the cost of building and simulating more complicated models. In this research I show, however, that social interactions are the source of externalities that when ignored may generate policy recommendations which are seriously biased. The social cost of this bias may well justify adding another layer of complexity to our current models. Hence, I develop an agent-based macro-econometric model for the developing world that endogenizes the process of technology diffusion by formalizing the role of social interactions. In this model, macro-behavior emerges from microeconomic decisions made by decentralized heterogeneous agents who are organized in networks. These networks influence agents information flows, their expectations about the dynamics of the economic environment, and ultimately their technology adoption decisions. The model is used to address the question of how to allocate aggregate income to the creation of human and produced capital, and how to distribute over time the consumption of natural resources and environmental services, in order to generate a sustainable growth path that maximize inter-temporal social welfare.

The research is organized in 7 Chapters. Chapter 1 reviews policy issues related to sustainable development and outlines the constraints imposed by current analytical frameworks. Chapter 2 is concerned with the definition and measurement of a sustainable growth path. In this Chapter I also implement an econometric analysis to measure the effects of social capital on the depletion rate of a given economy. Chapter 3 develops a macroeconomic framework that relates macroeconomic policies, technology policies, and environmental policies to indicators of sustainable development. Chapter 4 develops a theory of the linkage between social capital and technology diffusion. The insights are used in Chapter 5 to construct and calibrate the agent-based model of technology diffusion and growth. Chapter 6 uses the model to answer the question of how to allocate over time investments in produce capital, technology incentives and the consumption of carbon emissions. Finally Chapter 7 summarizes the major methodological and policy insights from the research.

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