Does Community Social Capital Determine Household’s Copping Strategies with Hazards of Financial Crisis? Evidence from Transition Economies

Previous studies have a key limitation inasmuch as they did not assess the influence of community social capital on coping strategies of households with the effects of financial crisis. It is unclear, therefore, to what extent households were able to utilize the existing community social capital in order to maintain their well-being during the crisis. The extraordinary circumstances of the recent crisis present an opportunity to explore the role of social capital in alleviating the negative impact of economic shocks in the transitional countries. In this paper, we applied social capital theory to the case of households in transitional countries of the Eastern Europe and former Soviet Union affected by the recent economic crisis. The objective of this paper is to identify the impact of community social capital on household coping strategies. Three-level mixed-effect linear regression models are estimated to differentiate the impact of variables at household, community, and country levels. In these models households (level 1) are nested in communities (level 2) which are nested in countries (level 3). In our case multilevel mixed models have two main advantages over classic single-level OLS. First, using multilevel regression allows us to fully exploit hierarchical structure of the LITS. Ignoring hierarchical multilevel structure of data set makes regression results biased. Second, using a particular coping strategy is likely to be correlated among households due to unobserved community-specific and country-specific characteristics. The lack of information regarding unemployment, expenditure for social welfare, ethnic and religious composition, culture, traditions at community and country levels in transitional countries are the instances of such unobserved characteristics.Our main finding is that choice of survival strategies during the crisis has strongly depended on community-level social capital. Higher level of social capital in community is associated with increase in utilization of active coping strategies. We also found that most of the households in transitional countries have to use depleting coping strategies. Fewer households applied to safety net strategies. Furthermore, among those households which applied to safety net strategies, overwhelming majority had to borrow money rather than receive benefits from state social welfare programs. The results of the study can be very useful for policy makers in order to be more effective in protecting households and their members from the potential adverse impacts of economy-wide shocks.