Abstract
We propose an endogenous growth model incorporating social capital. Social cap-
ital only serves as an input in the production of human capital and it involves a cost
in terms of the final good. In contrast to alternative specifications, this model en-
sures that social capital enhances productivity gains by playing the role of a timing
belt that drives the transmission and propagation of all productivity shocks. We find
that, depending on the measure of social capital, the elasticity of human capital to
social capital varies from 6% to 10%. Finally, we investigate the short-term dynamics
and imbalance effect properties of the model, depending on the value of this elastic-
ity. In particular, we show that when the substitutability of social capital for human
capital increases, the economy is better equipped to surmount initial imbalances as
individuals may allocate more working time to the final good sector without impeding
economic growth.