Working Paper: NBER ID: w24533
Authors: Giacomo A.M. Ponzetto; Ugo Troiano
Abstract: This paper shows that social capital increases economic growth by raising government investment in human capital through better political incentives and selection. We provide empirical evidence that a greater share of output is spent on public education where social capital is higher, both across countries and across U.S. states. We develop a theoretical model of stochastic endogenous growth with imperfect political agency. Only some people correctly anticipate the future returns to current spending on public education. Greater social diffusion of information makes this knowledge more widespread among voters. As a result, social capital alleviates myopic political incentives to underinvest in human capital. It also helps voters select politicians who ensure high productivity in public education. Through this mechanism, we show that social capital raises the equilibrium growth rate of output and reduces its volatility.
Keywords: Social Capital; Government Expenditures; Economic Growth
JEL Codes: D72; D83; H4; H52; I22; I25; O43; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Social Capital (Z13) | Government Investment in Human Capital (J24) |
| Government Investment in Human Capital (J24) | Economic Growth (O49) |
| Social Capital (Z13) | Public Education Spending (H52) |
| Public Education Spending (H52) | Economic Growth (O49) |
| Social Capital (Z13) | Government Accountability (H83) |
| Government Accountability (H83) | Public Investment in Education (H52) |
| Social Capital (Z13) | Equilibrium Growth Rate (O40) |
| Social Capital (Z13) | Volatility in Output Growth (E32) |