Social capital, technology diffusion and sustainable growth in the developing world

Abstract : One of the topics that has emerged during the last decade in the policy agenda of national governments and international organizations is the design of policies that seek long-term economic growth while improving and sustaining the environment. The analysis of this type of policies is usually based on macroeconomic models which link changes in policy instruments (e.g., fiscal policy, pollution taxes, carbon permits, energy subsidies) to some outcome measure such as aggregate output or consumption. Critical assumptions within these models are related to the dynamics of technology-related-variables, such as total factor productivity, or the carbon intensity of the economy. Usually, these dynamics are defined exogenously, or endogenized by formalizing the effects of changes in input prices or R&D investments. Nonetheless, the micro- process of technology adoption, where decentralized heterogeneous economic agents interact and share information about the dynamics of the economy and the characteristics of new technologies, has been always ignored. Yet, it is this process which is behind the diffusion of new technologies and ultimately the dynamics of macro variables such as the carbon intensity of the economy.