Does Social Capital Promote Industrialization? Evidence from a Rapid Industrializer

Abstract

A new stylized fact in development economics is the importance of social capital in promoting economic growth. This paper examines the effect of social capital on industrialization in Indonesia. We analyze a rich set of social capital and social interaction measures, including voluntary associational activity and levels of trust and informal cooperation. The main finding is that initial social capital does not predict subsequent industrial development across 274 Indonesian districts. Though these findings are for only a single nation and may not apply everywhere, they call into question recent claims regarding social capital and economic development.