Article ID Journal Published Year Pages File Type
991877 World Development 2012 15 Pages PDF
Abstract

SummaryWhile previous studies evaluate the impact of social capital on development outcomes, there are very few empirical studies on determinants of social capital formation. We use unique long panel data from Sri Lanka to examine the mechanism of social capital formation in an imperfect credit market. We show that households facing credit constraints reduce investments in social capital. Furthermore, temporal declines in investment persistently reduce general trust, trust in villagers, and trust in business partners. While previous studies argue that social capital improves access to informal credit, we show the reverse causality. Combining these findings suggests a potential poverty trap.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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