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Returns to Social Capital: Estimates Based on the Augmented Augmented-Solow Model

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Author Info
Hirokazu Ishise (Department of Economics, Boston University)
Yasuyuki Sawada (Faculty of Economics, University of Tokyo)

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Abstract

This paper estimates the aggregate output elasticity of social capital that characterizes the aggregate returns to social capital. With this aim, we apply Nonneman and Vanhoudt's (1996) augmented version of the augmented Solow model of Mankiw et al. (1992) by including social capital as an additional production input. The estimated output elasticity of social capital is approximately 0.1. While our results largely indicate that social capital positively affects economic growth, the magnitude of the effects is smaller than that of physical and human capital as well as labor inputs. Moreover, the median value of the implied aggregate return of social capital is approximately 9.77% at the global level and, in OECD countries, it is likely to be considerably smaller than the individual returns, suggesting the fallacy of composition. As a by product, the depreciation rate of social capital is estimated to be approximately 10% per annum which is significantly higher than that of physical capital.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-413.

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Length: 43pages
Date of creation: Apr 2006
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Handle: RePEc:tky:fseres:2006cf413

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