The Contribution of Social-institutional Infrastructure in Sustainable Economic Growth

Abstract Sustainable development (SDGs) is on the global agenda. However, global economic activities are deepening market fundamentalism while diverging from the equality of the goals outlined in the SDGs. Originally, economic society has always had two opposing goals: the pursuit of private profit and the improvement of social welfare level. This paper proposes harmonizing and balancing with public institutions rather than restricting private rights simply in economic activity. It examines the success or failure of intertemporal decision-making to maintain sustainable economic growth by constructing a socially institutional infrastructure while motivated by the pursuit of private profit. Social-institutional infrastructure, such as public capital and social institutions, does not directly generate economic growth. However, free economic activity cannot complete its performances solely, and private business capital can become more productive through external economies generated by the social-institutional infrastructure. This paper examines the macroeconomic effects of investing in social-institutional infrastructure incorporating the Marshallian external economy through intertemporal decision-making. We can draw the following conclusions. First, numerical analysis of the model shows that it is possible to reach social welfare levels that exceed the optimal growth planning without deploying Keynesian public utility projects even in developing economies. Then, the steady-state levels of capital and consumption are far below the modified golden rule level guided by Ramsey-type optimal growth planning. The results mean a more sustainable allocation of socially finite scarce resources. In addition, this paper estimated the GDP elasticity of fixed assets for each country based on time series data for OECD countries from 1995 to 2022 and statistically analyzed the effectiveness of various variables corresponding to the social-institutional infrastructure on the elasticity. As a result, public support for “Public order safety”, “Economic affairs”, and publicly financed “R&D” and the market income-based “Gini coefficient” are statistically significant below 5%. The results on the Gini coefficient are not based on disposable income, indicating that measures to induce a more uniform income distribution through employment regulations and wage systems in parallel with business activity are more effective than ex-post income-redistribution policies. (334)