Social capital, trust, and multiple equilibria in economic performance

Growiec, Katarzyna and Growiec, Jakub (2009): Social capital, trust, and multiple equilibria in economic performance. Forthcoming in: Macroeconomic Dynamics

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 lacking 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: bridging social capital; social trust; earnings; subjective well-being; multiple equilibria; poverty trap
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply; D - Microeconomics > D1 - Household Behavior and Family Economics > D10 - General

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