Human and Social Capital Complementarities in the Presence of Credit Market Imperfections

Abstract

This paper focuses on the individual level social capital in easing the credit market constraint which facilitates the accumulation of costly human capital. Human capital in turn affects individual income and the level of bequest, which reduces income inequality. It is shown that investment in social capital has a negative relationship with the interest rate and so the initial inherited bequest of every individual affects the output and investment in the short-run as well as in the long-run. Also, the paper shows that cross-country differences in such macroeconomic activities are due to the non-monetary cost of social exclusion from mobility which affects the long-run equilibrium.