Social Capital, Trust, and Multiple Equilibria in Economic Performance

Abstract

We propose a novel mechanism giving rise to poverty traps and multiple equilibria in economic performance. It is a potentially important source of persistent underdevelopment across countries and regions. At the core of this mechanism, bridging social capital and social trust feed back on each other, interdependently affecting individuals' earnings and subjective well-being. High trust and abundant bridging social capital reinforce each other, leading to a “high” equilibrium where both these variables take persistently high values, and earnings and well-being are high as well, whereas low trust and lack of bridging social capital create a vicious circle, leading to a “low trust trap” where all these variables are persistently low. The workings of our theoretical model are in agreement with a wide range of findings from the contemporary literature in sociology and social psychology.

Trusting Only Whom You Know, Knowing Only Whom You Trust: The Joint Impact of Social Capital and Trust on Happiness in CEE Countries

“…Fourthly, in a closely related paper (Growiec and Growiec 2013) we have put forward a theoretical model aimed at capturing the hypothesis that bridging social capital and social trust can form both virtuous and vicious circles, leading to multiple equilibria in economic performance. In the current contribution, we have tested these predictions empirically by checking the signs and statistical significance of interaction terms between both types of social capital, trust, and employment status, leading to mixed results.…”

“…The key explanatory variables of our cross-sectional regressions explaining individuals' happiness-bridging and bonding social capital, own social trust and average social trust in the reference group-have been chosen in line with the underlying social capital literature as well as the implications of the theoretical model, developed in a closely related paper (Growiec and Growiec 2013). We have also included a number of control variables in these regressions, found to have a significant impact on the dependent variables, such as individuals' earnings, education, age, size of town of residence, etc.…”

“…The mechanism investigated here is based on the conjecture that citizens of CEECs may be trapped in a low bridging social capital-low trust equilibrium where forming social ties with dissimilar people is discouraged by the lack of general trust, and conversely-forming social trust is hampered by little social exposure-thus generating a vicious circle (Growiec and Growiec 2013). A complementary hypothesis is that bonding social capital works against quick modernization and socio-economic development.…”

Social Capital and Polish Students’ Behaviour in Experimental Games Designed to Illustrate Cooperation

“…Social capital in the form of generalised trust and reciprocation is typically seen to be positively correlated with economic growth (Growiec and Growiec, 2014). Poland is often regarded as the most successful of the post-Soviet bloc countries in its transformation from a planned economy to a market economy.…”

Are Human and Social Capital Linked? Evidence from India

“…In recent years, a considerable amount of literature has been published on the role of social capital in economic growth. Several studies, for instance, Routledge and von Amsberg (2003), Chou (2006), Bofota et al (2012), Growiec and Growiec (2012), Ponzetto and Troiano (2014), and Ag enor and Dinh (2015) have suggested models in which social capital is an instrument of economic growth and notably emphasized the role of social capital from different perspectives in the process of economic growth and development. Ag enor and Dinh (2015) is however the first systematic study that developed a two-period (adulthood and old age) Overlapping Generations (OLG) model of endogenous economic growth with endogenous time allocation in which the links between social capital, human capital, and product imitation have been analyzed.…”