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Trust based social capital, economic growth and property rights: Explaining the relationship

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journal contribution
posted on 03.07.2015, 10:58 by Mahyudin Ahmad, Stephen G. Hall
Purpose The purpose of this paper is to attest whether generalized trust variable is the best proxy for social capital in explaining the latter’s effect on economic growth in a panel setting. Via a specially formulated theoretical framework, the authors also test whether the growth-effect of social capital is direct or indirect, and if it is indirect, can property rights be the link between social capital and growth. Design/methodology/approach The authors begin with testing the robustness of generalized trust variable in explaining the effect of social capital on growth and property rights. The authors then propose a number of trust-alternative variables that are shown to contain an element of trust based on theoretical arguments drawn from previous studies, to proxy for social capital and re-estimate its effect on growth and property rights. In this study, the authors use panel estimation technique, hitherto has been limited in social capital studies, which are capable of reducing omitted variable bias and time-invariant heterogeneity compared to the commonly used cross-sectional estimation. Findings First, the authors find that generalized trust data obtained by the World Value Survey (WVS) are unable to yield sufficiently robust results in panel estimation due to missing observations problem. Using the proposed trust-alternative variables, the estimation results improve significantly and the authors are able to show that social capital is a deep determinant of growth and it is affecting growth via property rights channel. The findings also give supporting evidence to the primacy of informal rules and constraints as proposed by North (2005) over the political prominence theory by Acemoglu et al. (2005). Research limitations/implications Generalized trust data obtained from the WVS, frequently used in majority of social capital studies to measure social capital, yield highly non-robust results in panel estimation due to missing observations problem. Future studies in social capital intending to use panel estimation therefore need to find trust-alternative variables to proxy for social capital, and this paper has proposed four such variables. Originality/value The use of panel estimation technique extends the evidence of social capital significance to economic growth and property rights, since the previous social capital studies rely heavily on cross-sectional estimation technique. Due to the availability of annual observations of the trust-alternative variables, this paper is able to find better results as compared to estimation using generalized trust data.

Funding

Stephen Hall acknowledges the support of ESRC-DFID Growth Programme (Award number RS10G0066)

History

Citation

International Journal of Social Economics, 2017, 44(1), pp.21 - 52

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCE/Department of Economics

Version

AM (Accepted Manuscript)

Published in

International Journal of Social Economics

Publisher

Emerald

issn

0306-8293

Copyright date

2381

Available date

01/07/2017

Publisher version

http://www.emeraldinsight.com/doi/full/10.1108/IJSE-11-2014-0223

Notes

JEL code: O43;The file associated with this record is under embargo until 24 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.

Language

en

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