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The Role of Social Capital In Financial Development

Author

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  • Guiso, Luigi
  • Sapienza, Paola
  • Zingales, Luigi

Abstract

To identify the effect of social capital on financial development, we exploit the well-known differences in social capital and trust (Banfield (1958), Putnam (1993)) across different parts of Italy, using microeconomic data on households and firms. In areas of the country with high levels of social trust, households invest less in cash and more in stock, use more checks, have higher access to institutional credit, and make less use of informal credit. In these areas, firms also have more access to credit and are more likely to have multiple shareholders. The effect of trust is stronger where legal enforcement is weaker and among less-educated people. The behaviour of movers is mainly affected by the level of trust of the environment whete they live, but a significant fraction of the effect is also due to the level of trust prevailing in the province where they grew up.

Suggested Citation

  • Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2000. "The Role of Social Capital In Financial Development," CEPR Discussion Papers 2383, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2383
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital; Development; Financial; Social;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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