Working Paper: CEPR ID: DP2383
Authors: Luigi Guiso; Paola Sapienza; Luigi Zingales
Abstract: To identify the effect of social capital on financial development, we exploit the well-known differences in social capital and trust (Banfield (1958), Putnam (1993)) across different parts of Italy, using microeconomic data on households and firms. In areas of the country with high levels of social trust, households invest less in cash and more in stock, use more checks, have higher access to institutional credit, and make less use of informal credit. In these areas, firms also have more access to credit and are more likely to have multiple shareholders. The effect of trust is stronger where legal enforcement is weaker and among less-educated people. The behaviour of movers is mainly affected by the level of trust of the environment whete they live, but a significant fraction of the effect is also due to the level of trust prevailing in the province where they grew up.
Keywords: social capital; financial development
JEL Codes: D10; G20; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social capital (Z13) | financial development (O16) |
| trust (G21) | cash investment (G31) |
| trust (G21) | stock investment (G10) |
| trust (G21) | use of personal checks (D14) |
| trust (G21) | access to credit (G21) |
| trust (G21) | reliance on informal loans (G21) |
| trust (G21) | likelihood of receiving loans from relatives or friends (G51) |