Productivity, Factor Accumulation and Social Networks: Theory and Evidence*

The paper analyzes how social barriers to communication affect economy-wide productivity and factor accumulation. Using a dynamic model of an economy that includes a reproducible capital stock (physical or human) and effective labor, a negative relationship is shown to exist between social barriers to communication and total factor productivity (TFP), per capita consumption and reproducible capital. Robust estimates obtained from crosscountry data are consistent with the model’s predictions. The theory and empirical results help explain cross-country differences in TFP, the high productivity performance of leading industrialized countries and how productivity ‘catch up’ may be initiated. JEL classification: O41, C61, C21