Social capital, sociopolitical instability, and economic development: A general equilibrium model

Abstract

This essay describes the main features of a general equilibrium model of social capital and social conflict. According to the model, agents decide to participate in a number of conflict events while, at the same time, accumulate social capital. In the process, the government interacts with the economic actors by discouraging civil disobedience and social violence. The results show that social conflict is decreasing with the accumulation of physical capital, human capital, social capital, and government expenses on social development programs. Output growth in the economy depends positively upon accumulation of all types of capitals and social development funding, and negatively upon social conflict. More importantly, social capital is found to have a considerable positive effect on growth not only directly via investment, as suggested by recent empirical literature, but also indirectly by reducing the levels of social conflict. The model shows that the growth trajectories of the economy display a history-dependent pattern of growth with multiple-equilibria where countries converge to a nontrivial stable steady-state in the long-run. We also provide evidence in favor of the “club convergence” hypothesis which is predicated upon the initial levels of all types of capitals and the underlying level of social conflict.