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Study Notes

Economic Growth - Social Capital

AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

Social capital focuses on the value of social networks in improving productivity in an economy

Social networks can be used to spread beneficial ideas, causing individuals and society to simultaneously progress.

There are different types of social capital

  1. Bonding capital – i.e. social networks among homogeneous groups e.g. family and close friends
  2. Bridging capital - social networks among heterogeneous groups “getting ahead” (professional acquaintances, classmates)
  3. Linking – deeper links between people in dissimilar situations, outside of the community; “getting to the next level” (political parties, trade unions, parents groups, sports clubs, student unions)

How can social networks promote growth and development?

The key effect of strong social capital is in building trust within and between people in a nation

  • Trust helps to make markets work e.g. the willingness of people to trade and to agree contracts
  • Respect for democratic public institutions and the rule of law
  • Participation in democracy, holding people in authority to account
  • Willingness to pay taxes and help fund the provision of public goods
  • Willingness to engage in collective action / community action to solve development problems such as community resilience to the effects of climate change, self-help groups in poorer communities. An example might be when a farmer adopts a new technology
  • Trust to share ideas – collaboration to promote innovation
  • Learning externalities in technology adoption
  • Trust in sending remittances (domestic and international) and in agreeing to make informal loans

Negative social capital

Social capital can also have downsides including political favouritism, corruption, tribalism and ethnic politics – these are examples of negative social capital.

Key points on social capital

  1. The rapid and extensive take up of mobile technology especially in Africa might accelerate positive social network effects
  2. Trust is the key feature of social capital – when trust is high, countries tend to spend less on defensive services such as insurance, policing and other protective services
  3. Growing interest in behavioural economics is important – especially herd behaviour in communities
  4. Strong social capital can make it easier to protect and grow common resources such as fish stocks and grazing land and therefore make better use of scarce environmental resources.

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