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SOCIAL DISTANCE AND ECONOMIC DEVELOPMENT

Published online by Cambridge University Press:  15 November 2018

Dimitrios Varvarigos  and
Guangyi Xin
Dimitrios Varvarigos*
Affiliation:
University of Leicester
Guangyi Xin
Affiliation:
Shanghai Lixin University of Accounting and Finance
*
Address correspondence to: Dimitrios Varvarigos, School of Business (Division of Economics), University of Leicester, University Road, LE1 7RH Leicester, United Kingdom, Tel. +44 (0) 116 252 2184; e-mail: [email protected]@le.ac.uk
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Abstract

We show that path dependency in economic development can emerge in a model where social distance affects capital accumulation. This effect works through the impact of social interactions on individuals’ incentives to invest. Social distance evolves intergenerationally, as the process of social interactions with people from different backgrounds generates familiarity and experiences that are bequeathed to the next generation, thus shaping their perceptions and opinions about “outsiders.” A key result is the possibility of alienation among people who belong to different groups, if social distance is above a threshold. The initial conditions with respect to social distance and the capital stock can both be critical in determining the economy’s long-term prospects.

Keywords

Social DistanceCultural ExternalitiesEconomic Development
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 4 , June 2020 , pp. 860 - 881
Copyright
© Cambridge University Press 2018

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Footnotes

This study is a significant modification and reworking of material found in Chapter 1 of Guangyi Xin’s PhD thesis “Essays on Social Capital and Economic Activity” (University of Leicester). We are grateful to two anonymous reviewers and to an Associate Editor for their very useful comments and suggestions. We would also like to thank Aris Boukouras, Jesse Matheson, Tania Oliveira, and Eugenia Vella for their comments on earlier drafts.

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