P12: Distances, technologies, and development

Globalization can be conceptualized as a continuous reduction of effective distance. In an economic network this has the twofold implication of (i) shortening the average path length between economic agents and (ii) dissolution of local connectivity. In simple words, with globalization people interact more frequently with strangers and less frequently with neighbors. As a consequence technologies travel over longer distances (more knowledge spillovers) but self-enforced local norms erode (less trust).

Standard models of endogenous growth emphasize the superior role of knowledge and technology but they usually fail to capture the notion of globalization as a process. Instead it is assumed that once discovered knowledge spills over completely (or at a time-invariant degree) across the whole economy. It is thus no wonder that they fail to get the historical evolution of income and factor productivity right.

The project starts at these stylized facts and aims on developing a superior model of the globalization process. We intend to develop an integrated theory on the impact of both knowledge spillovers and trust in isolation what has been heavily researched over the last decade. The goal of the research project is thus to integrate in the theory of economic growth a micro-founded, network-based theory of interaction of economic agents. In this project, we further intend to address problems of city development and their effect on knowledge diffusion and growth.