Seminar: Chryssi Giannitsarou, Cambridge University

Title: NETWORK STRUCTURE AND HUMAN CAPITAL DYNAMICS.  

ABSTRACT: We study how network structures affect the dynamics of human capital, growth and inequality. We do this by explicitly embedding networks into an otherwise standard endogenous growth model of overlapping generations, in which human capital depends on four factors, namely (i) investment in education, (ii) intergenerational transmission (iii) a global externality and (iv) a local externality that is determined by the network structure. We show that if the population is initially heterogeneous, there exists a balanced growth path with no inequality and its local stability and transition dynamics depend on the network at hand, summarized by a measure of network cohesion. We find that as network cohesion increases, the parameter region for which the balanced growth path is stable becomes larger; i.e. it becomes more likely that society will converge to a path of long run equality. We also find that growth during transition is maximized when regions with the highest initial human capital are located at central nodes of the network. In general, growth rates during transition may be well above or below the growth rates for the two extreme cases of a complete and an empty network depending on the distribution of initial human capital. On the other hand, inequality during transition is always between the inequalities of the two extreme cases and is smaller when central nodes of the network have high initial human capital.