Academic journal article International Advances in Economic Research

The Influence of Socioeconomic Factors on Economic Growth

Academic journal article International Advances in Economic Research

The Influence of Socioeconomic Factors on Economic Growth

Article excerpt

Abstract The main goal of this paper is to analyse the relationship between social capital and economic growth taking into account the role of fiscal policy from theoretical and empirical points of view. To achieve this goal, "Human Capital and Public Capital Effects on Economic Growth" is focused on the effects of two traditional factors: human capital and public capital effects on economic growth. "Social Capital Effects on Economic Growth" considers qualitative variables introducing some socioeconomic effects on economic growth process analysis. In this case, social capital the main variable will be considered. "Empirical Analysis," an empirical analysis is developed considering the case of European countries prior to the EU enlargement. Finally, in Conclusions," the main conclusions will be resumed.

Keywords Social capital * Economic growth * Fiscal policy

JEL Classification O40 * O41

Introduction

One of the main objectives of economic literature is to determine the factors that enhance economic growth. In classical economics the availability of resources, like land and minerals, was considered an essential prerequisite to growth. Later, this statement was modified, and physical capital was identified as the key requisite to development and industrialization processes. During the 1980s economic growth theoreticians recognized that it was necessary to take into account new elements. So, technology, human capital, and public capital were also introduced into the analysis. The development of endogenous growth models and the improvement in statistical data, also, favoured the consideration of qualitative variables such as quality of institutions (North 1990) and social capital (Fukuyama 1995, 2001; Putnam 1993, 2002; Putnam and Goss 2003).

Human Capital and Public Capital Effects on Economic Growth

A very large amount of literature has analysed the characteristics of human capital and its relationship with economic growth. Mankiw et al. (1992) in their analysis of human capital effects find two conclusions. Firstly, if taxation is used to improve human capital the negative effects on economic growth will be reduced. Secondly, if technological catch-up has an important role in improving economic growth, then it would be interesting to test if fiscal policy could influence positively human capital.

On the other hand, Romer (1996) states that better worker formation would provide more productive human capital, which would be growth enhancing. For this reason, a fiscal policy that improves human capital formation could also be useful for promoting economic growth.

However, it is also possible to find negative effects of human capital especially in the case when fiscal policy is used to enhance human capital financed by taxation. According to Barro (1990) a more expansive fiscal policy financed by taxes would have two opposed effects: positive ensued from the improvement in productivity and negative because it is necessary to finance the public expenditure.

Also, according to Schultz (1962) and Becker (1964), education could be considered as a way of increasing the productive potentiality of economic agents. One problem to take into account is the definition of human capital. Some authors consider that the concept incorporates education and health due to the fact that health is considered as an indispensable element for the workers to develop their activity appropriately (Barro 2003; Galindo 1998). Besides, it was necessary to consider that education expenditure and health expenditure are a way of correcting different market failures, showing positive effect on growth (Benabou 1993; Mankiw et al. 1992).

There is an intense debate over public capital and human capital effects on economic growth (Gramlich 1994) being the main empirical literature on public capital is not conclusive. Some empirical literature finds a positive effect of public capital on economic growth (Alfranca and Galindo 2003; Aschauer 1989; Cashin 1995; Galindo and Escot 1998; Munnell 1990; Otto and Voss 1992), while it is also possible to find studies that show a negative effect (Evans and Karras 1994). …

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