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Social Capital, Trust, and Multiple Equilibria in Economic Performance

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  • Growiec, Katarzyna
  • Growiec, Jakub

Abstract

We propose a novel mechanism giving rise to poverty traps and multiple equilibria in economic performance. It is a potentially important source of persistent underdevelopment across countries and regions. At the core of this mechanism, bridging social capital and social trust feed back on each other, interdependently affecting individuals' earnings and subjective well-being. High trust and abundant bridging social capital reinforce each other, leading to a "high" equilibrium where both these variables take persistently high values, and earnings and well-being are high as well, whereas low trust and lacking bridging social capital create a vicious circle, leading to a "low trust trap" where all these variables are persistently low. The workings of our theoretical model are in agreement with a wide range of findings from the contemporary literature in sociology and social psychology.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19518.

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Date of creation: 22 Dec 2009
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Handle: RePEc:pra:mprapa:19518

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Related research

Keywords: bridging social capital; social trust; earnings; subjective well-being; multiple equilibria; poverty trap;

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References

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  1. Sjoerd Beugelsdijk & Sjak Smulders, 2003. "Bridging and Bonding Social Capital: which type is good for economic growth?," ERSA conference papers ersa03p517, European Regional Science Association.
  2. Buly A. Cardak, 2004. "Education choice, neoclassical growth, and class structure," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 643-666, October.
  3. Robert Tamura, 2001. "Teachers, Growth, and Convergence," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1021-1059, October.
  4. FALL, Falilou, 2005. "Endogenous persistent inequality," CORE Discussion Papers 2005094, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Jess Benhabib & Mark Spiegel, 2002. "Human capital and technology diffusion," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  6. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  7. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  8. repec:hal:cesptp:halshs-00196084 is not listed on IDEAS
  9. Growiec, Katarzyna & Growiec, Jakub, 2010. "Trusting Only Whom You Know, Knowing Only Whom You Trust: The Joint Impact of Social Capital and Trust on Individuals' Economic Performance and Well-Being in CEE Countries," MPRA Paper 23350, University Library of Munich, Germany.
  10. Jim Davies, 2003. "Empirical Evidence on Human Capital Externalities," University of Western Ontario, Economic Policy Research Institute Working Papers 20035, University of Western Ontario, Economic Policy Research Institute.
  11. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  12. John F. Helliwell, 2002. "How's Life? Combining Individual and National Variables to Explain Subjective Well-Being," NBER Working Papers 9065, National Bureau of Economic Research, Inc.
  13. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  14. Rangazas Peter C, 2005. "Human Capital and Growth: An Alternative Accounting," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-43, September.
  15. Falilou Fall, 2005. "Endogenous persistent inequality," Cahiers de la Maison des Sciences Economiques v05059, Université Panthéon-Sorbonne (Paris 1).
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Cited by:
  1. Growiec, Katarzyna & Growiec, Jakub, 2010. "Trusting Only Whom You Know, Knowing Only Whom You Trust: The Joint Impact of Social Capital and Trust on Individuals' Economic Performance and Well-Being in CEE Countries," MPRA Paper 23350, University Library of Munich, Germany.
  2. Agenor, Pierre-Richard & Dinh, Hinh T., 2013. "Social capital, product imitation and growth with learning externalities," Policy Research Working Paper Series 6607, The World Bank.
  3. Joao Ricardo Faria & Peter McAdam, 2013. "From Social Contract to Arab Spring: Macroeconomic Adjustment under Regime Change," School of Economics Discussion Papers 0813, School of Economics, University of Surrey.
  4. Katarzyna Growiec & Jakub Growiec, 2011. "Trusting only whom you know, knowing only whom you trust: the joint impact of social capital and trust on individuals’ economic performance and happiness in CEE countries," National Bank of Poland Working Papers 94, National Bank of Poland, Economic Institute.

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