Arbeitspapier

From Tradition to Modernity: Economic Growth in a Small World

This paper introduces the Small World model (Watts and Strogatz, Nature, 1998) into the theory of economic growth and investigates how increasing economic integration affects firm size and effciency, 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 effcient 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 relatively many small firms of low productivity.

Language
Englisch

Bibliographic citation
Series: Diskussionsbeitrag ; No. 478

Classification
Wirtschaft
Economic Development: General
Economic Growth and Aggregate Productivity: General
Market Structure, Firm Strategy, and Market Performance: General
Transactional Relationships; Contracts and Reputation; Networks
Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
Subject
modernization
economic integration
firm size
norms
networks
knowledge spillovers
growth

Event
Geistige Schöpfung
(who)
Lindner, Ines
Strulik, Holger
Event
Veröffentlichung
(who)
Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
(where)
Hannover
(when)
2011

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Lindner, Ines
  • Strulik, Holger
  • Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Time of origin

  • 2011

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