Social Capital Formation Ensuring Inclusive Growth: A Development Mechanics for Backward Region

Transcription

1 MPRA Munic Personal RePEc Arcive Social Capital Formation Ensuring Inclusive Growt: A Development Mecanics for Backward Region Soumyananda Dinda Sido Kano Birsa University, Purulia 4. November 01 Online at ttps://mpra.ub.uni-muencen.de/6661/ MPRA Paper No. 6661, posted 5. August :3 UTC

2 Social Capital Formation Enancing Inclusive Growt: A Development Mecanics for Backward Region Abstract Soumyananda Dinda Sido- Kano- Birsa University, Purulia, West Bengal, India November 4, 01 Recently, economics literature incorporates te role of social capital as an explanation for wy some regions/countries are ric and oters remain poor. Economic development of country/region depends on te impact of social capital wic includes social culture, social norms and regulations tat promote economic reforms and development activities. Social capital is defined in a broad term containing te social networks and norms tat generate sared understandings, trust and reciprocity, wic underpin cooperation and collective action for mutual benefits and creates te base for economic prosperity. Social capital acts as a driver of economic growt. Social capital forms wit te development of uman capital troug scooling. Educated individuals are interested in dialogue and conversation. People interact in a purposeful manner wit eac oter in families, workplaces, neigbouroods, associations (local, national or international) and range of informal and formal meeting places. Interaction enables people to build trust, confidence and cooperation, to commit temselves to eac oter (i.e. reciprocity), and tereby to knit te social fabric. Tis paper tries to develop mecanism troug wic social capital forms and tat contributes to economic development in te framework of endogenous growt model. Tis study deals wit te formation of social capital troug development of uman capital tat is created troug improvement of scooling and/or social inclusion. Social capital actually greases te weels tat allow nations or regions to advance smootly. JEL Classifications: Z130, J40, O150. Key Words: Social Capital, Social network, Co-operation, Trust, Reciprocity, Human Capital, Economic Growt, Scooling, Social Inclusion, Economic Development, Endogenous Growt *Address for Correspondence: Department of Economics, Sido Kano Birsa University, Purulia 73101, India. sdinda000@yaoo.co.in, sdinda@gmail.com and s.dinda@rediffmail.com

3 Social Capital Formation Ensuring Inclusive Growt: A Development Mecanics for Backward Region Soumyananda Dinda Sido- Kano- Birsa University, Purulia November 4, Introduction Te study of determining factors of economic growt in te literature mainly focuses on te factors like te relative stock of pysical and/or uman capital, trade, te available tecnology and capability to produce and diffuse knowledge etc. Earlier studies omit a relevant dimension: social culture tat promotes economic growt and development. Economic analysis as given less empasis to te social culture, social norms and regulations tat promote economic reforms and development. Economic development of country/region depends on te wider impact of social culture. Recently, economists become more and more interested in te role of social culture as an explanation for wy some regions/countries are ric and oters remain poor toug tey ave (nearly same levels of) pysical and uman capital. Several studies ave investigated te impact of social culture, wic includes social structure based on trust, norms, cooperation and networks. All tese lead to develop a new concept of social capital 1 (Bourdieu 1980, 1 Bourdieu (1986), Coleman (1988) and Putnam et al. (1993) are credited for introducing te concept of social capital. Coleman (1990) defines social capital:.social organization constitutes social capital, facilitating te acievement of goals tat could not be acieved in its absence or could be acieved only at a iger cost. Putnam et al (1993) provide similar caracterization, social capital.. refers to features of social organization, suc as trust, norms, and networks tat can improve te efficiency of society... According to tem, social capital is a type of positive group externality tat arises from social organization (Coleman 1990), specifically informal forms of social organization suc as trust, norms and networks (Putnam et al (1993)). Fukuyama (1997) argues tat only certain sared norms and values sould be 1

4 1986; Coleman 1988, 1990; Putnam et al. 1993; Putnam 000; Fukuyama 1997; Lin 001; Ostrom 000; Coen and Prusak 001; Rose 000; Bertrand and Mullainatan 000; Beugelsdijk and Smulders 004; Glaeser et al. 000; Knack et al. 1997; Tau 003; etc.). Social capital is a broad term containing te social norms and networks tat generate sared understandings, trust and reciprocity, wic underpin co-operation and collective action for mutual benefits, and creates te base for economic prosperity. Te concept of social capital as a long istory in te social sciences. In te last two decades of te twentiet century Bourdieu (1980, 1986), Coleman 3 (1988, 1990) and Putnam 4 (1993, 1995) popularized it. Bourdieu (1986) introduced social capital to explain ow social and economic forces create and maintain capitalist culture. According to Bourdieu (1986) economic, cultural and social capitals togeter sape te permissible actions in any particular field of operation. Cultural capital knows ow to acieve one s goals and social capital knows people wo could elp one to do so. Bourdieu (1986) saw tese tree as running togeter regarded as social capital. Social capital can be defined simply as te existence of a certain set of informal rules or norms sared among members of a group tat permits cooperation among tem. Te norms tat produce social capital.. must substantively include.. te meeting of obligations, and reciprocity. Bourdieu (1986) defines te social capital as te sum of te resources, actual or virtual, tat accrue to an individual or group by virtue of possessing a durable network of more or less institutionalized relationsips of mutual acquaintance and recognition. 3 Coleman (1988) defines social capital by its function. It is not a single entity, but a variety of different entities, wit two elements in common: tey all consist in some aspect of social structures, and tey facilitate certain actions of actors witin te structure (Coleman 1988). 4 Social capital is referred to as features of social life-networks, norms, and trust tat enable participants to act togeter more efficiently to pursue sared objectives (Putnam 1993). Putnam (000) introduces te idea of social capital in terms of relations or interdependence between individuals: social capital refers to connections among individuals social networks and te norms of reciprocity and trustwortiness tat arise from tem.

5 in class formations, and also as convertible 5. Coleman (1988) develops an alternative view of social capital empasizing on te collective aspects of social capital 6. He argued tat social capital is defined by its function. Tis functionalist view of social capital is multi-faced. Coleman outlines tree aspects of social capital: obligations and expectations, information flow capability, and norms accompanied by sanctions. Social capital, in Putnam s view, is te features of social organization suc as networks, norms, and trust tat facilitate coordination and cooperation for mutual benefit. Putnam was careful tat is view of social capital sould not be seen as a substitute for economic capital. Social capital refers to te norms and networks tat enable collective action. Tese tree foundational views of social capital ave significant areas of overlap wit some important incompatibilities. Bourdieu s conception of social capital is clearly a tool of oppression. Putnam s view seems to regard association between people as positive in its own rigt. Coleman s perspective empasizes te use of social capital as a precursor of uman capital. Bourdieu and Coleman agree tat te notion of social capital can be converted into oter forms of capital. Tus, social capital appears to be a desirable object for policy-making. Policy can aim to increase social capital wit te related ideas of scool improvement and social inclusion. Tis is our main concern. 5 Take for example, te upper classes convert economic capital into cultural and social capital by sending teir cildren to private scools. Social and cultural capitals gain teir value because people wit status recognize te value of eac oter s capital, so even toug individuals (or ouseolds) utilize tese capitals and tey ave collective effects. 6 Social capital is te sared knowledge, understanding, norms, rules and expectations about patterns of interactions tat groups of individuals bring to a recurrent activity (Ostrom 000). Social capital may be defined operationally as resources embedded in social networks and accessed and used by actors for actions (Lin 001). So, te concept of social capital as two important components: (i) it represents resources embedded in social relations rater tan individuals, and (ii) access and use of suc resources reside wit actors. So, social capital can be considered as te stock of active connections among individuals - te trust, mutual understanding, and sared values and beaviours tat bind te members of uman networks and communities and make possible cooperative action (Coen and Prusak 001). 3

6 Social capital 7 also greases te weels tat allow communities or nations to advance smootly. Social capital contributes to economic growt by focusing te importance of cooperation and trust witin firm, industry, market and te state. Heller 1996, Ostrom 000 and Rose 000 point out tat social capital contributes to economic growt 8 by facilitating collaboration between individual interests towards te acievement of increased output. Several studies (Bertrand and Mullainatan (000), Beugelsdijk and Smulders (004), Bjornskov (006), Glaeser et al. (000), Alesina and Ferrara (00), Miguel (003), Knack et al. (1997), Sobel (00), Tau (003), Temple and Joson (1998)) ave discussed about te features of social capital and its contribution to economic growt. Few studies ave given attention ow tis social capital generates or wat policies stimulate to form tis capital 9. Te mecanism troug wic social capital is created, accumulated (or influences on te economic activity) is still opened. Tis study focuses on tese untouced parts of te determinants of social capital in te growt model. Tis paper mainly concentrates on ow social capital forms troug development 7 It represents one of te points of interaction between individual and society, since social capital allows te individual to act in certain ways, but only witin a collectively defined and supported area of freedom. Interaction enables people to commit temselves to eac oter and to knit te social fabric. A sense of belonging and te concrete experience of social networks bring benefits to te members. Individuals are engaged in repeated interactions wit oters and everyday business, so, social transactions are less costly. An individual as access to resources troug social capital tat depends on is/er connections, te strengt of tese connections, and resources available to it. Truly, social capital elps to improve te efficiency of society by facilitating coordinated action. Tus, social capital creates a common platform in wic individuals can use membersip and networks to secure benefits. Social capital allows individuals to resolve collective problems more easily. Individuals often migt be better off if tey cooperate, wit everybody doing er/is own work. In tis context, social norms and te networks tat enforce tem provide an institutional mecanism wit te power to ensure compliance wit te collectively desirable beaviour. 8 Countries/regions wit relatively iger stocks of social capital, in terms of generalized trust and widespread civic engagement seem to acieve iger levels of growt, compared to societies wit low trust and low civicness. 9 At te final stage of tis draft I find a paper of Rupasinga et al (006) explain te generation of social capital. Our approac is different from tem. 4

7 of uman capital in te cannel of productive consumption 10. Development economists (Steger 00, Dasgupta and Marjit 00) recognize te possibility of productive consumption tat enables te satisfaction of current needs and also increases productivity of labour. Te productive consumption stimulates to accumulate uman capital troug wic te base is created for cooperation, social norms, regulations and institutional formations, and tus, it elps to develop and strengten social networks and tereby form te social capital. We analyze te formation of social capital and its impact on economic development in te framework of endogenous growt model. Tis study is organized as follows: Section builds up a model in te framework of endogenous growt model. Following Steger (00), Section.1 discusses ow productive consumption develops uman capital. Section. analyses ow te developed uman capital (or educated individuals) generate and accumulate social capital. Section.3 provides standard welfare function and optimizes it wit respect to constraint. Section.4 analyses te results derived from our model. Section.5 deals wit welfare function incorporating social capital. Section 3 supports our model empirically. Section 4 discusses about te possible policies tat elp to develop social capital and lastly concludes.. Model Te representative ouseold produces output, y, using composite capital, k. Under AK- type production tecnology, te intensive production 11 functional form is 10 Te expenditure on ealt and education as positive contribution to te output growt, wic is revealed, on macroeconomic level (Hicks 1979, Weeler 1980). Tis consumption expenditure (activities) is classified as productive consumption. 11 All variables are measured in terms of per capita. Here, we assume tat population growt rate is zero. 5

8 y f (k), f cons tan t, f 0 and f(0)=0. (1) Te assumption of diminising returns is replaced by constant returns, wic is crucial for sustainable growt and also a broader interpretation of capital. Steger (00) defines capital as te composition of pysical and uman capital, ere we add te social capital to it for wider sense of capital tat is discussed later. One part of produced output is used for consumption and oter part for investment. Te equation of motion of te pysical capital, k p, is k f ( k) c k () p p p Were p is te depreciation rate of pysical capital..1 Productive Consumption creates uman capital One portion of consumption is used for te development of uman capital in terms of ealt and education tat increases te productivity of labour. Tis type of consumption is considered as productive consumption tat elps to develop uman capital (Steger 00). Te productive consumption improves uman capital of a country/region and tereby economic development. Human capital enancement function, (c), is strictly concave (suc tat, ( c) 0, ( c) 0 and lim ( c) ( c) or c lim ( c) 0 and c lim ( c) 0 c ). Te equation of motion of te uman capital, k, is k (c) (3) 6

9 Pysical capital 1, k p, is produced on te basis of te same tecnology tat is used to produce consumption goods and its accumulation requires, at least in part, te renunciation of consumption, wile uman capital, k, results from productive consumption (Steger 00).. Human Capital develops Social Capital Development of uman capital creates te base for te formation of social capital. We igligt te case of scooling troug wic social capital (social norms, trust, cooperation, networks etc) forms. Education s longstanding concern wit association and te quality of life in associations make direct and indirect important contribution to te development of social networks 13 (trust, tolerance and reciprocity tat are usually involved). Educated individuals are interested in dialogue and conversation, and develop cultural environment in wic people can work togeter (cooperative and trustworty). So, education or scool improvement creates te platform for interaction between individuals 14. Interaction enables people to commit temselves to eac oter, and tereby to knit te social fabric. Tis is te basis for te formation of social capital. 1 In tis context, k p could be equally interpreted as pysical and uman capital tat requires te renunciation of consumption for its accumulation (Steger 00). 13 Educational acievement is likely to rise significantly, and te quality of day-to-day interaction is likely to be enanced by a muc greater empasis on te cultivation of extra-curricula activity involving groups and teams. Tus, encouraging te development of associational life can also make a significant difference to te experience of being in different communities. 14 In oter word, uman capital is capable to create and develop norms, regulations, and social networks tat form te social capital, and tereby economic growt and development (Temple and Jonson (1998)). 7

10 Tere is considerable evidence 15 tat communities wit a good stock of social capital are more likely to benefit from iger educational acievement, better ealt, and better economic performance. Social capital of an economy definitely depends on te available stock of uman capital. So, social capital formation sould be a function of uman capital, i.e., S k ), wit usual property 0 and 0. Te equation of motion of ( te social capital, k s, is k ( k ) k (4) s s s Were s is te depreciation rate of social capital. Te wole stock of composite capital is defined as k k 1 p k ks. Te equation of te motion of stock of composite capital, k, can be written as: k k (5) 1k p k 3 s k Were 1, k p k, k 3 (1 )k. k s Substituting eq.() - (4) in eq(5), it can be written as 1 f ( k) 3( k ) ( c) 1 p K p 3 k K (6) Were c) c ( ) is te Net Consumption. ( 1 c Te equation (6) contains two additional terms viz., social capital k ) and net consumption (c), wic includes productive consumption (c) s s (. It sould be noted tat productive consumption creates uman capital, wic as two fold impact on te economy directly develops uman capital and indirectly creates social capital. 15 Social capital is igly correlated wit good educational outcomes, good ealt and good government 8

11 .3 Welfare function Individuals may form or join groups weter tey are organized around certain (entusiasms) interests, social activity, economic and/or political aims can make considerable contribution to te economy. Te simple act of joining regularly involved in organized groups as a significant impact on individual well being. Te representative ouseold maximizes er (is) instantaneous utility troug consumption at eac moment. Te traditional objective of te ouseold is Max u( c) 0 t U ( c) e dt Subject to te constraint k f ( k) ( k ) ( c K K 1 3 ) 1 p p 3 s (7) s k p ( 0) 1, k ( 0) 1 and k s ( 0) 1..4 Implications F.O.C of tis solution is uc (8) c were is te sadow price of k and c 1 c. Te eq. (8) implies tat along te optimal trajectory te marginal utility of consumption equals to marginal net cost of consumption in utility measured units. It is also clear tat te level of consumption is iger compare to productive consumption. Te optimal economic growt rate is c c 1 1 f k 3 ( k) K ( p s ) (9) (Putnam (000)). 9

12 cucc c cc ccc Were 0,, provided 1 c, i.e., is undefined u c c 1 c at c 1 k k p, 0 if c k and 0 if k p c k. k p Te term is inter-temporal elasticity of consumption. Te second term, is te elasticity of net consumption, in te first bracketed term. It is te only extra term added to traditional optimal consumption growt rate due to productive consumption. Tat means te consumption or expenditure on ealt and education improves uman capital, wic stimulates to grow furter. In oter words, productive consumption as significant effect on economic growt troug te elasticity of net consumption ( ). We observe tat social capital is an important factor tat explains economic growt. Since 0 economic growt rate is more in eq.(9) tan te productive consumption K growt model developed by Steger (00). Tis difference is created due to incorporation of social capital tat is reflected in te second term, K, in te second bracket in eq. (9). Te marginal productivity of social capital, K, is positive and tereby it as definite returns or/and incentives to grow te social capital troug widening social network. Proposition 1: Marginal productivity of social capital, rate as long as definite returns from it. K, fastens economic growt Te optimal growt pat of te economy (eq.(9)) differs from our conventional growt pat due to te term K. Now we rewrite te second term in second bracket of eq (9) as 3 K K 1 K s S K. It sould be noted tat K K s S K is te (cross) elasticity or sensitivity of K s wit reference to K. If te social capital formation is insensitive to 10

13 uman capital ( 0 ) te economic growt rate (eq (9)) tends to represent te K conventional growt rate (Solow growt model). Te economic growt rate will be more compared to te conventional growt rate because of te contribution of social capital in te economy (i.e., K >0). Tus, as long as social capital as definite contribution or return te economic growt rate will be iger wit proper (or balance) economic development. For te analytical purpose, we specify te following functional forms. Production function: y f ( k) Gk (10) Human capital enancement function: ( c) ln(1 c) (11) Sk Social capital function: ( k ) S k wen k S k k k (1) Utility function: 1 c 1 u ( c) (13) 1 Suppose, te economy is at k k, ten ( ) S, social capital is only in terms of k family bonding. Te economic growt rate is c c 1 G ( ) 1 p s (14) Tis is a low level of equilibrium growt rate wit fixed level of social capital. Suppose te economy is at k k, ten ( k ) Sk S k, social contacts or networks increases and strengtening te social bonding or linking/bridging capital and tereby employability rises as well as economic growt. Ten te economic growt rate is 11

14 c c 1 3 1G S ( ) p s S k (15) Tis is a ig level equilibrium growt rate wit iger social capital formation compared to eq. (14). Obviously, economic growt rate at k k is iger tan at k k only because of te presence of effective social capital (second term) in second 3 bracket viz., S S k 0. Now grapically we explain and analyze te economic growt and development at different stages of economic position. Te formations of uman and social capital are explained grapically in te R-side (c, k) plane and L-side (k, ks) plane in figure 1, respectively. Figure 1 sows te possible multiple equilibrium situations. A low-level equilibrium trap exists in less developed economy, wic as poor quality uman capital in terms of ealt and education, and social network confines only wit family relationsip. Terefore, social network/capital remains more or less fixed at ks *. It is independent of k up to a minimum level of uman capital k tat does not elp to generate sufficient social network in terms of bridging/linking capital 16, wic could be productive. In suc low level or underdeveloped economy, low level of uman capital is insensitive and ineffective and fails to play a significant role to develop productive social capital. Terefore, less developed economy remains at e1 (k *, ks * ) low level equilibrium trap tat occurs at low level of social, uman and pysical capital (Fig.1). 16 It is a productive social capital tat is accumulated as a result of simultaneous production and consumption of relational goods taking place in te context of different kinds of social participation, wic facilitate te learning of cooperative attitudes, beaviours and reciprocity (Sabatini 006). 1

15 Te productive consumption is a crucial development policy for improving uman capital tat elps to generate social capital and tereby economic development. Social capital formation (in terms of bridging capital) takes sape as soon as uman capital exceeds k as defined in Figure 1 and continues until it reaces its maximum. Tis situation leads to a stable equilibrium at e3 (k ***, ks *** ) ig level of capital ( k consumption level ( c *** *** ) and corresponding ig ). In between low and ig level equilibrium, an unstable equilibrium exists at e (k **, ks ** ) corresponds to ** c. From fig.1, we observe multiple equilibrium (e1, e and e3) wit two stable equilibrium at (e1) and (e3), and one unstable equilibrium (e) in between tem. If once te economy crosses ** k, in fig.1, it certainly leads to iger economic growt rate along wit iger level of uman and social capital. It sould be noted tat ** k k is very difficult zone for less developed countries (LDC) and comparatively ig effort (or big pus) is required to acieve considerable social development and economic growt. Low-level equilibrium trap exists wen k k and te productive consumption is ineffective to develop uman capital as well as social networks. It becomes effective and efficient only wen k k. Tus, effectively productive consumption affects economic growt only after attainment of k level of uman capital tat starts to generate social network and tereby social capital. Economy needs greater efforts for development of uman capital particularly for te zone of k - ** k (i.e., k k k ** ). As soon as k exceeds ** k, k s monotonically increases wit k tat develops from productive consumption. In te context of economic 13

16 development, productive consumption is effective only in ** *** c c zone corresponding to ** *** k - k and ** *** s k s k zones. It sould be noted tat an unstable equilibrium exists at e ( k, k ** ** s ). A stable equilibrium occurs at e3 (k ***, ks *** ) wit ig social capital. It sould be mentioned tat developments of infrastructure and communication systems, wic are igly depends on te availability of pysical and uman capital, igly affect te formation of social network/capital. So, in tis context, we ave to consider tat social capital formation depends on bot uman and pysical capital, i.e., S k p, k ). ( For simplicity we consider ere tat only uman capital generates social capital, i.e., S ( k ), and continue our analysis..5 Social capital/network improves social welfare Social capital also operates troug psycological and biological processes to improve individual s lives. Mounting evidence suggests tat people wose lives are ric in social capital cope better wit traumas and figt illness more effectively. So, social capital makes an enormous difference to our lives. Tis can be captured in better way in te utility or welfare functional form. Individual welfare depends on consumption, c, and Max t social capital, k s, i.e., u ( c, ks ). So, te representative individual U ( c, ks ) e dt subject to constraint (eq.(6)). Te optimal growt is u( c) 0 c c 1 1 f k 3 k u c k k s s ( p s ) (16) 3 uc ks 14

17 ksucks Were 0, as u ck 0 u s. c Proposition : Social capital influence welfare troug psycological process and tereby economic growt rate rises. 3 Empirical Observations In tis section we try to provide some empirical support for te above said model based on cross-country study. First we try to sow tat te income level increases wit rising social capital wic increases wit te improvement of uman capital. Here we consider te trust in people (see Ingleart et al. (004) for details), average years of scooling 1990, and life expectancy 1990, as te social capital, uman capital (education) and quality of life (or ealt condition), respectively. 3.1 Data and Empirical results In tis study we ave borrowed (used) te data set tat is available in te website: ttp:// Tis (excel) data file collect and compile several data from different sources (given in details in p431 excel file). Several studies (Zak and Knack (001), Bengtsson et al. (005), Berggren and Jordal (006)) ave used tese data. We ave taken few relevant variables - viz., growt per capita (annual percentage growt rate of real GDP (cain) per capita ), trust 17 (first value of trust , World Value Surveys), per capita real GDP (Penn World Table 6.1), scoolmean90 (average years of scooling 1990, Barro and Lee 000), pol-rigt90 (political rigts 1990, Freedom House), civil-lib90 (civil liberties 1990, Freedom House), 15

18 scool_loggdp90 (product of average years of scooling and log of GDP per capita in 1990), lifeexp1990 (life expectancy 1990) and socinf (index of social infrastructure) for tis study. As a measure of democracy, we use te reverse order of civil liberty and political rigts as given in te said excel file. In tis study political rigts and civil liberty increase wit te index 1 to 7. No political rigts (civil liberty) and full political rigts (civil liberty) indicate 1 and 7, respectively. Tere are countries out of 63 ave no missing or unobservable values in excel file. We concentrate on tose countries only for our empirical analysis (Table A1). Table A and A3 in appendix provide te summary statistics of te variables and association (correlation) among temselves, respectively. Human capital forms troug scooling. Tis scooling (education) creates and strengtens te political rigts and civil liberty tat jointly interact and build social infrastructure and develop social capital. Figure a also indicates positive relationsip between average scooling and social infrastructure. Figure b sows a direct association between average scooling and social trust. Tis indicates tat as literacy rate increases te social infrastructure (network) and te trust in people improves. Tus, bot figures a and b indicate tat te development of uman capital improve te social capital. Table 1 provides te impacts of scooling on different socio-economic variables unconditionally (witout oter covariates). Tese empirical findings suggest tat te average scooling ave direct impact/influence on civil liberty, political rigt, income, social trust and infrastructure. Te ealt condition (life expectancy at birt) also improves wit education (scooling) at a decreasing rate. Te improvement of ealt condition is 17 First value of trust in people (%) from World Value Surveys plus Newzealand from a government sponsored survey for 1980,

19 strongly and directly associated wit te creation of social infrastructure. Tus, all tese indicate tat te development of uman capital is crucial to create te social capital. Insert table 1 ere Next we searc for te contribution of social capital on economic growt of a country. Figure 3a and 3b sow te direct relationsip between social infrastructure and per capita GDP, and social trust and per capita GDP, respectively. Table presents te empirical results of te impact of social capital on te income level. Social infrastructure and trust ave direct influence on te country s income level. Civil rigts and uman capital (education or scooling, ealt condition) as also positive impact on te income level. Insert table ere Figure 4 suggests tat te economic growt rate increase wit te improvement of social capital (specifically social trust in people). Table 3 presents te empirical results of te impact of social capital on te economic growt rate. Social trust as a definite and positive impact on te economic growt rate. However te impact of infrastructure on economic growt rate is not clear to us. Insert table 3 ere Our empirical findings suggest tat te social trust in people, civil rigts, social infrastructure and quality of life improve as uman capital develops troug scooling. Tese social capitals ave definite impact on te income level as well as on te economic growt and development. Tus, tese empirical results support our model. 91, (see Zak and Knack 001). 17

20 4 Policy In te less developed economies or societies, te productive consumption sould be a crucial policy for development of uman (ealt and knowledge) capital tat generates social norms, regulations and cooperation, and builds up social networks tat elps to create and concretize social capital. So, te productive consumption is effective and essential in LDC for accelerating economic growt. As productive consumption (c) increases te uman capital (c) rises and influences te economic growt rate troug elasticity of productive consumption ( ). Tus, productive consumption sould be a good policy for te development of underdeveloped countries if it truly enance te uman capital of tat country. Te policy makers sould focus tose forms of social capital, wic will noticeably improve te economic prosperity of distressed communities, and te economic inclusion of deprived, disadvantaged and marginalised individuals. Social capital can be created in a wide variety community based projects like business support (entrepreneuor) development programme, sports development programmes or community networks, work for food programmes etc. Community development programs sould be te prime policy to develop face-to-face interaction among individuals and creates a setting of norms for te development of trust among temselves (Dowla 006, Sabatini 006). Tis establised new norms build a new level of social trust tat acts as collateral and solve te collective action problems of poor people (Dowla 006). Te community development projects did raise (i) te confidence levels and feeling of well-being of te vast majority of te participants, (ii) improve te employability and (iii) employment opportunity of te participants. 18

21 Tese sould elp to create social norms, rules and regulations, cooperation and social networks. Tus, it also elps to grow a social culture in te community as well as in te economy. 5 Conclusion Social capital is a broad term containing te social norms and networks tat generate sared understandings, trust and reciprocity, wic underpin co-operation and collective action for mutual benefits, and creates te base for economic prosperity. Social capital could be accumulated wen people interact in a purposeful manner wit eac oter in families, workplaces, neigbouroods, (local, national or international) associations and range of informal and formal meeting places. Tese social activities rise as uman capital develops troug scooling. Educated individuals are interested in dialogue and conversation. Interaction enables people to build communities, to commit temselves to eac oter, and tereby to knit te social fabric. Tus social capital greases te weels tat allow communities or nations to advance smootly. Tis paper tries to develop mecanism troug wic social capital forms and contributes to economic growt in endogenous growt model framework. Tis study deals wit te building of social capital troug uman capital formation tat is created from productive consumption. Te economic growt rate is more compared to traditional growt rate. Te predictions of te model are examined empirically for a cross-section of countries and ave substantial support in te cosen sample data. 19

22 References: Alesina, A. and Ferrara, E. La., (00), Wo trusts oters?, Journal of Public Economics, vol.-85, Ballamoune-Lutz, M., 005, Institutions, Social Capital, and Economic Development in Africa: An empirical study, ICER working Paper No. 18/005. Bengtsson, M., Berggren, N. and Jordal, H., (005), Trust and Growt in te 1990s: A Robustness Analysis, Department of Economics, Uppsala University, Sweden, Working paper No. 005:1. Berggren, N. and Jordal, H., (006), Free to Trust: Economic Freedom and Social Capital, Kyklos, vol.-59(), Bertrand M.; Luttmer E. F. P.; Mullainatan S., (000), Network Effects and Welfare Cultures, Quarterly Journal of Economics, vol.-115(3), Beugelsdijk, S. and Smulders, S., 004, Social Capital and Economic growt, Working paper. Bjornskov, C., (006), Te multiple facets of social capital, European Journal of Political Economy, vol.-, -40. Bourdieu, P., (1980), Te production of belief: contribution to an economy of symbolic goods., Media, Culture and Society, vol-(3), Bourdieu, P., (1986), Te forms of capital, In Jon G. Ricardson (ed.) Handbook of Teory and Researc for te Sociology of Education, Westport, CT, Greenwood Press, 4. Cristoforou, A., 001, Social capital and economic growt: te case of Greece, European Institute. 0

23 Coleman, J.S., (1988), Social capital in te creation of uman capital, American Journal of Sociology, vol-94, Coleman, J.S., (1990), Foundations of Social Teory, Cambridge, MA, Harvard University Press. Dasgupta, D. and Marjit, S., (00), Consumption, quality of Life and Growt, Economic Researc Unit, Indian Statistical Institute, Kolkata, Working Paper- ERU/00-1. Diamantaras, D. and Swanson, C. E., 004, Culture as Organizational capital in Economic Growt, Competition among culture, April, Dowla, Asif, (006), In Credit we trust: Building Social capital by Grammeen Bank in Banglades, Te Journal of Socio-Economics, vol.-35, Glaeser E. L.; Laibson D. I.; Sceinkman J. A.; Soutter C. L., (000), Measuring Trust, Quarterly Journal of Economics, vol.-115(3), Ingleart, R., Basanez, M., Diez-Medrano, J., Halman, L., and Luijkx, R., (004), Human Beliefs and values: A Cross-Cultural Sourcebook Based on te Values Surveys, Siglo XXI Editores, Mexico City. Knack, Stepen., and Keefer, Pilip., (1997), Does Social Capital Have an Economic Payoff? A Cross-Country Investigation, Quarterly Journal of Economics, vol.-11(4), Lin, N., (001), Social Capital, Cambridge, Cambridge University Press. Miguel, E., (003), Comment on Social Capital and growt, Journal of Monetary Economics, vol.-50,

24 Putnam, Robert., (000), Bowling Alone: Te Collapse and Revival of American Community, Simon and Scuster, New York. Putnam, Robert., (1995), Bowling Alone: America s Declining Social Capital, Journal of Democracy, Vol-6, Putnam, Robert., Leonardi, Robert. and Nametti, Raffaella., (1993), Making Democracy Work, Princeton, Princeton University Press. Rupasinga, A., Goetz, S. J. and Freswater, D., (006), Te Production of social capital in U.S. countries, Te Journal of Socio-Economics, vol.-35, Sabatini, F., (006), Does Social capital Improve Labour productivity in small and medium enterprises?, University of Rome, Working paper n.9 Sobel, Joel., (00), Can We Trust Social Capital?, Journal of Economic Literature, Vol.-XL, Steger, T. M., (000), Economic growt wit subsistence consumption, Journal of Development Economics, vol.-6, Steger, T. M., (00), Productive consumption, te intertemporal consumption tradeoff and growt, Journal of Economic Dynamics & Control, vol.-6, Tau, L. M., (003), Investing Social Capital to stimulate economic growt and trade in Africa, Paper presented at te Biennial conference of te economic society of S. Africa. Temple J.; Jonson P. A., (1998), Social Capability and Economic Growt, Quarterly Journal of Economics, vol.-113(3), Zak, P. J. and Knack, S., (001), Trust and Growt, Economic Journal, vol.-111,

25 Figure 1: Social Capital Formation wit Multiple Equilibrium k k ) s *** ( k e3 Stable ig level growt (c) equilibrium L-side R-side e k ** k e 1 k * *** ** * ks k s k s k s c * c ** c *** c Stable Low level equilibrium growt (trap) Unstable equilibrium growt 3

26 Table 1: Results of te impacts of scooling on socioeconomic and political variables Variable Constant t-value Mean Scooling (year) t-value Civil Rigt Political Rigt (4.89) (6.41) (3.9) (5.06) Dependent Variables Life Social Trust GDP log(gdp) Expectancy Infrastructure (35.14) (.3) (1.63) (-3.43) (35.78) (9.1) (6.9) (5.43) (10.3) (10.54) R R Loglikeliood function No. of Countries Table : Results of Social Capital on te Income level (GDP) Variables Intercept Trust Social Infrastructure Civil Rigt Political Rigt Scooling Life Expectancy R R Log likeliood function No. of Observations (0.) *** (6.9) Income level (GDP) (1) () (3) (4) *** *** (-6.8) (-8.4) * (1.90) 1931*** 1636*** (6.0) (6.71) *** ** (.77) (.57) (-1.4) *** (5.79) *** (-3.9).747 (0.75) 14398*** (5.4) *** (.84) (-1.67) *** (3.35) * (1.76) Note: Te figures in parenteses are t-values. ***, ** and * indicate te level of significance at 1%, 5% and 10%, respectively. Table 3: Results of Social Capital on te Economic Growt rate. 4

27 Variables Intercept Trust Social infrastructure Civil rigt Political rigt GDP Mean scooling Life expectation Growt rate per capita (1) () (3) (4) (5) (6) 1.68** 1.16 (.19) (1.41) 0.06*** 0.044*** (3.36) (.67) -.35* (-1.98) (1.3) 0.038*** (.65) (-1.5) 0.96 (-1.1) 0.76 (0.94) 0.069*** (3.67) ** (-.6) (-0.35) 0.38 (1.6) (-0.75) 0.073*** (3.77) (-1.01) (0.4) 0.07 (0.73) (-1.33) (0.95) (0.03) 0.069*** (3.46) ** (-.1) (-0.3) 0.31 (1.1) -0.0 (-0.15) (0.) R R Log likeliood function No. of Observations Note: Te figures in parenteses are t-values. ***, ** and * indicate te level of significance at 1%, 5% and 10%, respectively. 5

28 Appendix Table A1: List of countries in our sample study Algeria, Argentina, Australia, Austria, Banglades, Belgium, Bolivia, Brazil, Canada, Cile, Cina, Colombia, Costa Rica, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador, Finland, France, Germany, Gana, Great Britain, Greece, Guatemala, Honduras, Hungary, Iceland, India, Indonesia, Ireland, Italy, Japan, Jordan, Mexico, Neterlands, New Zealand, Nicaragua, Norway, Pakistan, Panama, Paraguay, Peru, Pilippines, Poland, Portugal, Romania, Sout Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Uganda, Uruguay, USA, Venezuela, Zimbabwe. Table A: Summary Statistics of te Variables NAME N MEAN ST. DEV VARIANCE MINIMUM MAXIMUM GDP E GRWPC TRUST MSCHOOL LIFEPT SOCINF SCHLGD POLRT CIVILRT Table A3: Correlation Matrix TRUST 1.00 GDP GRWPC MSCHOOL LIFEPT SOCINF SCHLGD POLRT CIVILRT TRUST GDP GRWPC MSCHOOL LIFEPT SOCINF SCHLGD POLRT CIVILRT 6