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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.

Suggested Citation

  • Growiec, Katarzyna & Growiec, Jakub, 2009. "Social Capital, Trust, and Multiple Equilibria in Economic Performance," MPRA Paper 19518, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:19518
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    References listed on IDEAS

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    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. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    3. Falilou Fall, 2005. "Endogenous persistent inequality," Cahiers de la Maison des Sciences Economiques v05059, Université Panthéon-Sorbonne (Paris 1).
    4. Helliwell, John F., 2003. "How's life? Combining individual and national variables to explain subjective well-being," Economic Modelling, Elsevier, vol. 20(2), pages 331-360, March.
    5. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    6. Benhabib, Jess & Spiegel, Mark M., 2005. "Human Capital and Technology Diffusion," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 13, pages 935-966 Elsevier.
    7. 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.
    8. 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.
    9. Buly A. Cardak, 2004. "Education choice, neoclassical growth, and class structure," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 643-666, October.
    10. Jim Davies, "undated". "Empirical Evidence on Human Capital Externalities," Working Papers-Department of Finance Canada 2003-11, Department of Finance Canada.
    11. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 151-172.
    12. Robert Tamura, 2001. "Teachers, Growth, and Convergence," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1021-1059, October.
    13. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 173-189.
    14. Growiec, Jakub & Growiec, Katarzyna, 2007. "Social Capital, Well-Being, and Earnings: Theory and Evidence from Poland," MPRA Paper 7071, University Library of Munich, Germany.
    15. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
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    Citations

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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. Katarzyna Growiec & Jakub Growiec, 2016. "Bridging Social Capital and Individual Earnings: Evidence for an Inverted U," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(2), pages 601-631, June.
    3. 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," NBP Working Papers 94, Narodowy Bank Polski, Economic Research Department.
    4. Katarzyna Growiec & Jakub Growiec, 2014. "Trusting Only Whom You Know, Knowing Only Whom You Trust: The Joint Impact of Social Capital and Trust on Happiness in CEE Countries," Journal of Happiness Studies, Springer, vol. 15(5), pages 1015-1040, October.
    5. repec:bla:metroe:v:68:y:2017:i:4:p:859-881 is not listed on IDEAS
    6. Dimitrios Varvarigos & Guangyi Xin, 2015. "Social Interactions, the Evolution of Trust, and Economic Growth," Discussion Papers in Economics 15/05, Department of Economics, University of Leicester.
    7. 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.
    8. Katarzyna Growiec & Jakub Growiec & Bogumil Kaminski, 2017. "Mapping the Dimensions of Social Capital," Working Papers 2016-025, Warsaw School of Economics, Collegium of Economic Analysis.
    9. Agénor, Pierre-Richard & Dinh, Hinh T., 2015. "Social capital, product imitation and growth with learning externalities," Journal of Development Economics, Elsevier, vol. 114(C), pages 41-54.
    10. Raffaella Coppier & Fabio Sabatini & Mauro Sodini, 2018. "Social capital, human capital and fertility," EERI Research Paper Series EERI RP 2018/04, Economics and Econometrics Research Institute (EERI), Brussels.
    11. repec:eee:ecmode:v:70:y:2018:i:c:p:272-287 is not listed on IDEAS
    12. Barış Alpaslan, 2017. "Are Human and Social Capital Linked? Evidence from India," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 859-881, November.

    More about this item

    Keywords

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

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • D10 - Microeconomics - - Household Behavior - - - General

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