Economic Growth and Social Capital

Recently the importance of social capital has been recognized more and more m rts various economic aspects.We shall analyse the role of social capital good in economic growth from the viewpoint of heterogeneity of goods.In our economy there exist two capital goods, being heterogeneous with each other.Their functions in a production process and markets are crucially different from each other.The one may be called the private capital good, and the other the social capital good.The latter has the following characteristics, as seen in Section II; It is made through the transformation function from the output produced by the production function.It has to be financed by the taxation of government, since it has no market for selling and buying itself.However, we must begin with clarifying the concept of heterogeneity.In relation to the so-called "Hahn problem" 2, the question of heterogeneous capital goods has been tackled by some economists in the context of economic growth theory 3 6 7.And the various definitions on heterogeneity may be found in them.In Shell-Stiglitz's paper 7, for example, two capital goods are perfectly substitutable in the ffow dimension, but not in the stock dimension.Their concept of heterogeneity is closely related to the non-shiftability of capital goods.This paper proposes its own definition on heterogeneity.That is, heterogeneity is measured by the malleability between goods.If two goods are heterogeneous, i.e. different in shape, quality, function and so on, we must pay some cost to transform from one to another.It implies that perfect malleability indicates homogeneity and perfect substitutability.It is assumed for simplicity that the cost for transformation between heterogeneous goods will evaporate from the good in a transformation process.' Section I confirms characteristics and assumptions of the model.We analyse in Section II the influence of existence of the social capital good on the optimal tax rates as the quasigolden rule under the specification of Cobb-Douglas production function.It shall be shown that the optimal tax rates and the equilibrium capital-labor ratios are functions of the degree of heterogeneity.The possibility of existence and stability of the long-run steady growth path shall be investigated by the optimal growth model.