Growth and Human Capital: A Network Approach

We study the interactions of human capital, growth and inequality by embedding networks into an endogenous growth model with overlapping generations. Human capital depends on investment in education and the average human capital of a household's neighborhood. High network cohesion leads to long run equality, while for low network cohesion inequality is high and persists more often. During transition, high overall growth is achieved when the network has high degree centralization, and high individual growth is achieved when the household has low human capital relative to its neighborhood and is located in a neighborhood with high average human capital.Part of this paper was completed during Chryssi Giannitsarou’s visit to the Federal Reserve Bank of Minneapolis – she is grateful for their hospitality.This is the author accepted manuscript. The final version is available from Wiley via http://dx.doi.org/10.1111/ecoj.1233

Network cohesion

We define a measure of network cohesion and show how it arises naturally in a broad class of dynamic models of endogenous perpetual growth with network externalities. Via a standard growth model, we show why network cohesion is crucial for conditional convergence and explain that as cohesion increases, convergence is faster. We prove properties of network cohesion and define a network aggregator that preserves network cohesion