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Social Capital Formation and Credit Access: Evidence from Sri Lanka

Listed author(s):
  • Shoji, Masahiro
  • Aoyagi, Keitaro
  • Kasahara, Ryuji
  • Sawada, Yasuyuki
  • Ueyama, Mika

While previous studies evaluate the impact of social capital on development outcomes, there are very few empirical studies on determinants of social capital formation. We use unique long panel data from Sri Lanka to examine the mechanism of social capital formation in an imperfect credit market. We show that households facing credit constraints reduce investments in social capital. Furthermore, temporal declines in investment persistently reduce general trust, trust in villagers, and trust in business partners. While previous studies argue that social capital improves access to informal credit, we show the reverse causality. Combining these findings suggests a potential poverty trap.

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File URL: http://www.sciencedirect.com/science/article/pii/S0305750X12002057
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Article provided by Elsevier in its journal World Development.

Volume (Year): 40 (2012)
Issue (Month): 12 ()
Pages: 2522-2536

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Handle: RePEc:eee:wdevel:v:40:y:2012:i:12:p:2522-2536
DOI: 10.1016/j.worlddev.2012.08.003
Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

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  1. Marcel Fafchamps, 2004. "Market Institutions in Sub-Saharan Africa: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062364, July.
  2. Edward L. Glaeser & David Laibson & Jose A. Scheinkman & Christine L. Soutter, 1999. "What is Social Capital? The Determinants of Trust and Trustworthiness," Harvard Institute of Economic Research Working Papers 1875, Harvard - Institute of Economic Research.
  3. Garcia, Rene & Lusardi, Annamaria & Ng, Serena, 1997. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 154-176, May.
  4. Dean Karlan & Markus Mobius & Tanya Rosenblat & Adam Szeidl, 2009. "Trust and Social Collateral," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 1307-1361.
  5. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
  6. Abhijit Banerjee & Esther Duflo & Gilles Postel-Vinay & Tim Watts, 2010. "Long-Run Health Impacts of Income Shocks: Wine and Phylloxera in Nineteenth-Century France," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 714-728, November.
  7. Ishise, Hirokazu & Sawada, Yasuyuki, 2009. "Aggregate returns to social capital: Estimates based on the augmented augmented-Solow model," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 376-393, September.
  8. Yujiro Hayami, 2009. "Social Capital, Human Capital and the Community Mechanism: Toward a Conceptual Framework for Economists," Journal of Development Studies, Taylor & Francis Journals, vol. 45(1), pages 96-123.
  9. Arcand, Jean-Louis & Fafchamps, Marcel, 2012. "Matching in community-based organizations," Journal of Development Economics, Elsevier, vol. 98(2), pages 203-219.
  10. Marcel Fafchamps, 2006. "Development and social capital," Journal of Development Studies, Taylor & Francis Journals, vol. 42(7), pages 1180-1198.
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