Social Capital Formation Ensuring Inclusive Growth: A Development Mechanics for Backward Region

Recently, economics literature incorporates the role of social capital as an explanation for why some regions/countries are rich and others remain poor. Economic development of country/region depends on the impact of social capital which includes social culture, social norms and regulations that promote economic reforms and development activities. Social capital is defined in a broad term containing the social networks and norms that generate shared understandings, trust and reciprocity, which underpin cooperation and collective action for mutual benefits and creates the base for economic prosperity. Social capital acts as a driver of economic growth. Social capital forms with the development of human capital through schooling. Educated individuals are interested in dialogue and conversation. People interact in a purposeful manner with each other in families, workplaces, neighbourhoods, associations (local, national or international) and range of informal and formal meeting places. Interaction enables people to build trust, confidence and cooperation, to commit themselves to each other (i.e. reciprocity), and thereby to knit the social fabric. This paper tries to develop mechanism through which social capital forms and that contributes to economic development in the framework of endogenous growth model. This study deals with the formation of social capital through development of human capital that is created through improvement of schooling and/or social inclusion. Social capital actually greases the wheels that allow nations or regions to advance smoothly.