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The Role of Social Capital in Financial Development

  • LUIGI GUISO
  • PAOLA SAPIENZA
  • LUIGI ZINGALES

To identify the effect of social capital on financial development, we exploit social capital differences within Italy. In high-social-capital areas, households are more likely to use checks, invest less in cash and more in stock, have higher access to institutional credit, and make less use of informal credit. The effect of social capital is stronger where legal enforcement is weaker and among less educated people. These results are not driven by omitted environmental variables, since we show that the behavior of movers is still affected by the level of social capital of the province where they were born.

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Paper provided by Center for Research in Security Prices, Graduate School of Business, University of Chicago in its series CRSP working papers with number 511.

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Date of creation: Feb 2000
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Handle: RePEc:wop:chispw:511
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