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Does Associational Behavior Raise Social Capital? A Cross-Country Analysis of Trust

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Abstract

This paper examines the impact that formal and informal associational behavior has on trust, as an indicator of social capital, across 32 countries. Ordinary Least Square regression identifies a weak effect of association with relatives on generalized trust, that sport and civic/political association raises trust, but cultural and religious associations reduce it. A Generalized Methods of Moments analysis reveals the same results for religious and civic/political association, but the impact of cultural association and that with relatives becomes insignificant, while sport association reduces trust. This suggests that countervailing effects from trust are present in these cases.

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Notes

  1. We are grateful for feedback and comments on the paper from Irene van Staveren and Iona Negru and two anonymous referees. Attending to their concerns has considerably improved the paper.

  2. See, for example, https://www.gov.uk/government/policies/promoting-social-action-encouraging-and-enabling-people-to-play-a-more-active-part-in-society accessed February 27, 2013.

  3. The impact of such variables is discussed in the literature review.

  4. Social capital is also linked directly to the accumulation of economic and cultural capital, that is, the economic, knowledge, and skill resources possessed by individuals, respectively.

  5. For example, the agent could be part of a community from which social capital is derived; however, access to this capital is lost when the agent leaves the community. Further, the benefits can be accrued by all community members, but not all need to contribute to produce it (see also Arrow 1999).

  6. This is similar to Fukuyama's [1995] distinction between horizontal and vertical association.

  7. A test between altruism and trust can be conducted by varying the endowments given to the agents. If more is transferred from rich to poor, then altruism may dominate. If results are invariant to this, then trust dominates. Brülhart and Usunier [2012] find support for the latter hypothesis.

  8. As argued by Gunnthorsdottir et al. [2002], “other-regarding” acts are typically viewed as investments in reputation per se. Investing trust in others produces a trustworthy return. This suggests that the experimental results may show that in practice agents hold the view that they may meet the agent, with whom they are currently trading, again. The literature maintains that an agent seeks to internalize the potential benefits of social interaction rather than to free ride. This emphasis on agents internalizing an externality is a significant point of departure of the economic work from the work of, say, Coleman.

  9. A review of the different ways in which social interactions can arise in economics is presented in a study by Manski [2000].

  10. At the time of writing, for example, data from Denmark and the Netherlands were not available.

  11. The values of the dependent variable and all of the other scaled independent variables that are reported are reversals of the actual raw data. This is in order to make the interpretation of the regression results more intuitive, such that a higher number indicates greater trust and so on.

  12. The use of such scales as regressors is discussed further in the section ‘Estimators’. The use of such scales has precedent in other work, associated with the well-being literature (see, e.g., Becchetti et al. 2008).

  13. The treatment of income in the current research required some manipulation because the data on income refer to either monthly or annual values. Further, different countries either collected income data gross of tax or net of tax. To cope with this complexity, all country-specific incomes were transformed into net annual US dollar purchasing power equivalent income estimates. This involved three sets of calculations. The first entailed dividing all income estimates by the country-specific purchasing power parity exchange rate, which is given with local currency units per international dollar and obtained from the United Nations’ webpage. In the second step, monthly income was multiplied by 12 to obtain annual income for all countries, but for Australia, Great Britain, Ireland, Japan, Norway, New Zealand, Slovakia, and the United States, in which annual income was already presented. Finally, for some countries, the income estimates had to be transformed from gross into net values. Using data from national statistics offices’ home pages, and identifying the gross domestic product (GDP) as gross income in an economy, a tax rate “t” was calculated as the ratio of a countries’ annual income tax revenues to their GDP. Net incomes were generated by multiplying gross incomes from the actual data by a factor calculated as “1” minus the implied tax rate, “t.” This generated a net annual US dollar purchasing power equivalent income estimate.

  14. The GMM estimator used does not focus on identifying specific equations as part of a structural model with the use of specific instruments. The focus is rather on identifying one equation through the use of relatively independent variation to control for endogeneity. Tests of these instruments presented in the results section suggest their adequacy.

  15. As a robustness check ordered probit estimates of the effects of the covariates on trust, clustering standard errors on countries produced very similar answers to the OLS estimates reported in the paper. They are available on request from the authors.

  16. Estimates were obtained from STATA 12.

  17. This is reinforced in an overidentified model (see Baum 2006).

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Downward, P., Pawlowski, T. & Rasciute, S. Does Associational Behavior Raise Social Capital? A Cross-Country Analysis of Trust. Eastern Econ J 40, 150–165 (2014). https://doi.org/10.1057/eej.2013.26

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