Social capital and household welfare in South Africa: Pathways of influence

Type Website Document
Title Social capital and household welfare in South Africa: Pathways of influence
Individuals and households use a variety of types of assets or capital for their various production activities. In contrast to physical and human capital, however, a frequently overlooked (at least by economists) resource is “social capital,” including, for example, the social networks to which households have access. Recent research has begun to fill this gap. In the economics literature, the extent of household membership in various groups has been used to proxy the household’s stock of “social capital.” For example, work (upon which this study builds) in South Africa has demonstrated that social capital, as measured by an index of formal and informal group participation, has a positive and significant effect on household per capita expenditures. Three recent empirical economics studies of social capital [Narayan and Pritchett, 1999; Knack and Keefer, 1997; Grootaert, 1999] posit similar mechanisms by which social capital affects household welfare. Borrowing primarily from the work of Coleman [1988], Putnam [1995], and Fukuyama [1995], the hypothesised mechanisms can be summarised as (1) reductions
in the costs of transactions by improving information flows about new opportunities and potential shocks, improving the diffusion of innovations, and improving knowledge about the comparative performance of local government agents; (2) promotion of consultative decisionmaking as well as collective action that minimizes negative externalities and promotes the production of public goods; and (3) fostering of time-sensitive exchanges for mutual benefit by developing norms of civic behaviour, trust, and reputation dissemination. Moreover, as some of these time-sensitive exchanges might be triggered by a crisis, social capital may serve as informal insurance. The household-level studies of Narayan and Pritchett [1999] and Grootaert [1999] in Tanzania and Indonesia, respectively, find that the effect of social capital, as measured by an index of group membership and quality, on household per capita expenditure is large. Narayan and Pritchett [1999: 884] find it is 4 to 10 times as large as the impact of human capital, while Grootaert [1999: 26-27] finds it is twice as large. For the latter in Indonesia, a 10 percent increase in the social capital measure is associated with a 1.1 percent increase in per capita total expenditure. Maluccio, Haddad, and May [2000] carry out a similar exercise, but using panel data in South Africa. They also find that social capital, as measured by a quality-adjusted index of formal and informal group membership, has large and positive effects on household per capita expenditures in 1998, but not in 1993. As the South African economy has liberalized the returns
to social capital as measured appear to be increasing. The objective in this paper is to begin to explore more directly some of the observed patterns in South Africa by disaggregating the group membership based measure of social capital along three dimensions: the level of participation by the household in the group, the main function of the group, and the trust levels within the group.

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