Social Capital vs Institutions in the Growth Process
AbstractIs social capital always important for economic growth? A number of recent micro studies suggest that interpersonal trust and social capital will have its greatest impact on economic performance when court institutions are relatively weak. The conventional wisdom from macro studies, however, is that social capital is unconditionally good for growth. On the basis of the micro evidence, we outline an investment game between a producer and a lender in an incomplete-contracts setting. A key insight is that social capital will have the greatest e¤ect on the total surplus from the game at lower levels of institutional strength and that the effect of social capital vanishes when institutions are very strong. When we bring this prediction to an empirical cross-country growth regression, it is shown that the marginal effect of social capital (in the form of inter- personal trust) decreases with institutional strength. Our results imply that a one standard deviation rise in social capital in weakly institutionalized Nigeria should increase economic growth by 1.8 percentage points, whereas the same increase in social capital only increases growth by 0.3 percentage points in strongly institutionalized Canada.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 248.
Length: 42 pages
Date of creation: 09 Mar 2007
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
social capital; institutions; growth; investment;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-AFR-2007-03-17 (Africa)
- NEP-ALL-2007-03-17 (All new papers)
- NEP-DEV-2007-03-17 (Development)
- NEP-SOC-2007-03-17 (Social Norms & Social Capital)
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