EconPapers    
Economics at your fingertips  
 

From tradition to modernity: Economic growth in a small world

Ines Lindner () and Holger Strulik ()

Journal of Development Economics, 2014, vol. 109, issue C, 17-29

Abstract: This paper introduces the Small World model into the theory of economic growth and investigates how increasing economic integration affects firm size and efficiency, norm enforcement, and aggregate economic performance. When economic integration is low and local connectivity is high, informal norms control entrepreneurial behavior and more integration mainly improves search for investment opportunities. At a higher level of economic integration neighborhood enforcement deteriorates and formal institutions are needed to keep entrepreneurs in check. A gradual take-off to perpetual growth is explained by a feedback effect from investment to the formation of long-distance links and the diffusion of knowledge. If formal institutions are weak, however, the economy does not take off but stagnates at an intermediate income level. Structurally, the equilibrium of stagnation differs from balanced growth by the presence of many small firms with low productivity.

Keywords: Modernization; Economic integration; Firm size; Norms; Networks; Growth (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304387814000364
Full text for ScienceDirect subscribers only

Related works:
Working Paper: From Tradition to Modernity: Economic Growth in a Small World (2012) Downloads
Working Paper: From Tradition to Modernity: Economic Growth in a Small World (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:109:y:2014:i:c:p:17-29

Access Statistics for this article

Journal of Development Economics is currently edited by M. R. Rosenzweig

More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-06-13
Handle: RePEc:eee:deveco:v:109:y:2014:i:c:p:17-29