Grootaert empirically estimates how social capital affects household welfare and poverty in Indonesia. His focus: household memberships in local associations, an aspect of social capital especially relevant to daily household decisions that affect welfare and consumption.
The data suggest that households with higher social capital spend more per capita. They also have more assets, more savings, and better access to credit.
To estimate how social capital contributes to household welfare, Grootaert uses a reduced-form model of household welfare, which controls for relevant household and location characteristics. He measures social capital along six dimensions: density of memberships, internal heterogeneity of associations (by age, gender, education, religion, and so on), meeting attendance, active participation in decision-making, payment of dues, and community orientation.
The strongest effects come from:
Grootaert also estimates structural equations and uses instrumental variable estimation and historical data to address the possible endogeneity of the social capital variable and to demonstrate that the causality runs from social capital to household welfare.
This paper - a product of the Social Development Department - is part of a larger effort in the department to assess empirically the role of local institutions in the delivery of services and poverty alleviation. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Gracie Ochieng, room MC5-410, telephone 202-473-1123, fax 202-522-3247, Internet address gochieng@worldbank.org. The author may be contacted at cgrootaert@worldbank.org. (79 pages)
The full report is available in PDF format.