Industrial policy, social capital, human capital, and firm-level competitive advantage

  • Bo-Xiang Hsu
  • Yi-Min ChenEmail author


Despite the popularity of governmental action devised to foster firm performance, the link between industrial policy and firm-specific human capital and social capital has received scant attention in the strategic management literature. In this paper, we build a dynamic optimization model which bridges concepts from industrial policy, social capital, human capital, and firm-level competitive advantage. We derive theoretical and policy implications from our competitiveness model, concluding that it increases in the opportunity cost of social capital reduce the production of human capital, so the optimal opportunity cost of social capital under feasible industrial policy should be set equal to zero. A government’s optimal industrial policy to help accumulate and churn human capital should reduce the opportunity cost of social capital to zero and reduce the probability of human capital leaving the community to zero. Thus, the model not only expands the potential determinants of competitive advantage in the context of governmental intervention, but also broadens the human capital theory and social capital theory in the creation of firm-specific human capital.


Industrial policy Social capital Human capital Firm-level competitive advantage 



The authors acknowledge Professor Kun-Huang Huarng of Feng-Chia University and Professor Feng-Jyh Lin of Feng-Chia University for providing valuable suggestions and proofreading this paper. Bo-Xiang Hsu, Department of Asia-Pacific Industrial and Business Management, National University of Kaohsiung, Kaohsiung, Taiwan (E-mail:


  1. Acemoglu, D., & Ventura, J. (2002). The world income distribution. Quarterly Journal of Economics, 117(2), 659–694.Google Scholar
  2. Adler, P. S., & Kwon, S. W. (2002). Social capital: Prospects for a new concept. Academy of Management Review, 27(1), 17–40.Google Scholar
  3. Afandi, E., Kermani, M., & Mammadov, F. (2017). Social capital and entrepreneurial process. International Entrepreneurship and Management Journal, 13(3), 685–716.Google Scholar
  4. Agénor, P.-R., & Dinh, H. T. (2015). Social capital, product imitation and growth with learning externalities. Journal of Development Economics, 114(C), 41–54.Google Scholar
  5. Amit, R., & Schoemaker, P. J. H. (1993). Strategic assets and organizational rent. Strategic Management Journal, 14(1), 33–46.Google Scholar
  6. Amsden, A. H. (1989). Asia’s next giant: South Korea and late industrialization. New York: Oxford University Press.Google Scholar
  7. Audretcsch, D. B., Bonte, W., & Keilbach, M. (2008). Entrepreneurship capital and its impact on knowledge diffusion and economic performance. Journal of Business Venturing, 23(6), 687–698.Google Scholar
  8. Baker, W. (1990). Market networks and corporate behavior. American Journal of Sociology, 96(3), 589–625.Google Scholar
  9. Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.Google Scholar
  10. Becker, G. S. (1964). Human capital: A theoretical and empirical analysis, with special reference to education. New York: Columbia University Press for the National Bureau of Economic Research.Google Scholar
  11. Ben-Porath, Y. (1967). The production of human capital and the life cycle of earnings. Journal of Political Economy, 75(4), 352–365.Google Scholar
  12. Bourdieu, P. (1986). The forms of capital. In J. G. Richardson (Ed.), Handbook of theory and practice for the sociology of education (pp. 241–258). New York: Greenwood.Google Scholar
  13. Brass, D. J., & Burkhardt, M. E. (1993). Potential power and power use: An investigation of structure and behavior. Academy of Management Journal, 36(4), 441–470.Google Scholar
  14. Bullough, A., & Renko, M. (2013). Entrepreneurial resilience during challenging times. Business Horizons, 56(3), 343–350.Google Scholar
  15. Burt, R. S. (1992). Structural holes: The social structure of competition. Cambridge: Harvard University Press.Google Scholar
  16. Burt, R. S. (2000). The network structure of social capital. In R. I. Sutton & B. M. Staw (Eds.), Research in organizational behavior vol. 22 (pp. 345–423). Greenwich: JAI Press.Google Scholar
  17. Campbell, B. A., Coff, R. W., & Kryscynski, D. (2012). Rethinking sustained competitive advantage from human capital. Academy of Management Review, 37(3), 376–395.Google Scholar
  18. Chadwick, C., & Dabu, A. (2009). Human resources, human resource management, and the competitive advantage of firms: Toward a more comprehensive model of causal linkages. Organization Science, 20(1), 253–272.Google Scholar
  19. Chen, S. T., Haga, K. Y. A., & Fong, C. M. (2016). The effects of institutional legitimacy, social capital, and government relationship on clustered firms’ performance in emerging economies. Journal of Organizational Change Management, 29(4), 529–550.Google Scholar
  20. Cimoli, M., Dosi, G., Nelson, R., & Stiglitz, J. E. (2009). Institutions and policies shaping industrial development: An introductory note. In M. Cimoli, G. Dosi, & J. E. Stiglitz (Eds.), Industrial policy and development: The political economy of capabilities accumulation (pp. 19–38). Oxford: Oxford University Press.Google Scholar
  21. Coff, R. W. (1997). Human assets and management dilemmas: Coping with hazards on the road to resource-based theory. Academy of Management Review, 22(2), 374–402.Google Scholar
  22. Coff, R. W., & Kryscynski, D. (2011). Drilling for micro-foundations of human capital-based competitive advantages. Journal of Management, 37(5), 1429–1443.Google Scholar
  23. Coleman, J. S. (1988). Social capital in the creation of human capital. American Journal of Sociology, 94 Supplement, S95–S120.Google Scholar
  24. Coleman, J. S. (1990). Foundations of social theory. Cambridge: Harvard University Press.Google Scholar
  25. Comin, D., & Mulani, S. (2009). A theory of growth and volatility at the aggregate and firm level. Journal of Monetary Economics, 56(8), 1023–1042.Google Scholar
  26. Davidsson, P., & Honig, B. (2003). The role of social and human capital among nascent entrepreneurs. Journal of Business Venturing, 18(3), 301–331.Google Scholar
  27. Duchek, S. (2018). Entrepreneurial resilience: A biographical analysis of successful entrepreneurs. International Entrepreneurship and Management Journal, 14(2), 429–455.Google Scholar
  28. Espinosa, M. M. B., Martín, A. C. U., & Dobón, S. R. (2003). The transmission of knowledge by means of strategic alliances: An application in the hotel industry. Journal of Transnational Management Development, 8(3), 19–34.Google Scholar
  29. Gashi, L. M., Požega, Ž., & Crnković, B. (2017a). Employees’ individual values as a source of human capital. Economic Research-Ekonomska Istraživanja, 30(1), 1057–1072.Google Scholar
  30. Gashi, L. M., Požega, Ž., & Crnković, B. (2017b). A cross-sectoral study of value profiles and differences between employees in private and public sector in south East Europe. South East European Journal of Economics and Business, 12(2), 7–19.Google Scholar
  31. Glaeser, E. L., Laibson, D., & Sacerdote, B. (2002). An economic approach to social capital. The Economic Journal, 112(483), F437–F458.Google Scholar
  32. Granoveter, M. S. (1985). Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91(3), 481–510.Google Scholar
  33. Granovetter, M. S. (1992). Problems of explanation in economic sociology. In N. Nohria & R. G. Eccles (Eds.), Networks and organizations (pp. 25–56). Boston: Harvard Business School Press.Google Scholar
  34. Growiec, K., & Growiec, J. (2014). Social capital, trust, and multiple equilibria in economic performance. Macroeconomic Dynamics, 18(2), 258–315.Google Scholar
  35. Hansen, M. T. (1999). The search-transfer problem: The role of weak ties in sharing knowledge across organizational subunits. Administrative Science Quarterly, 44(1), 82–111.Google Scholar
  36. Hatch, N. W., & Dyer, J. H. (2004). Human capital and learning as a source of sustainable competitive advantage. Strategic Management Journal, 25(12), 1155–1178.Google Scholar
  37. Hausmann, R., & Rodrik, D. (2003). Economic development as self-discovery. Journal of Development Economics, 72(2), 603–633.Google Scholar
  38. Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43(3), 249–267.Google Scholar
  39. Huarng, K. H. (2018). Entrepreneurship for long-term care in sharing economy. International Entrepreneurship and Management Journal, 14(1), 97–104.Google Scholar
  40. Kedmenec, I., & Strašek, S. (2017). Are some cultures more favourable for social entrepreneurship than others? Economic Research, 30(1), 1461–1476.Google Scholar
  41. Khanna, T., & Palepu, K. (2000). The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal, 43(3), 268–285.Google Scholar
  42. King, R. G., & Rebelo, S. (1990). Public policy and economic growth: Developing neoclassical implications. Journal of Political Economy, 98(5), S126–S150.Google Scholar
  43. Knack, S., & Keefer, P. (1997). Does social capital have an economic pay-off? A cross-country investigation. Quarterly Journal of Economics, 112(4), 1251–1288.Google Scholar
  44. Kogut, B. (2000). The network as knowledge: Generative rules and the emergence of structure. Strategic Management Journal, 21(3), 405–425.Google Scholar
  45. Kor, Y. Y., & Leblebici, H. (2005). How do interdependencies among human-capital deployment, development, and diversification strategies affect firms’ financial performance? Strategic Management Journal, 26(10), 967–985.Google Scholar
  46. Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), 473–491.Google Scholar
  47. Lang, J. C. (2004). Social context and social capital as enablers of knowledge integration. Journal of Knowledge Management, 8(3), 89–105.Google Scholar
  48. Lawler, E. J., & Yoon, J. (1998). Network structure and emotion in exchange relations. American Sociological Review, 63(6), 871–894.Google Scholar
  49. Lazzarini, S. G. (2015). Strategizing by the government: Can industrial policy create firm-level competitive advantage. Strategic Management Journal, 36(1), 97–112.Google Scholar
  50. Lim, H., & Lim, T. W. (2010). Sustainable development impacts of investment incentives: A case study of the pharmaceutical industry in Singapore. Trade Knowledge Network Paper, Singapore institute of. International Affairs Available at
  51. Lin, N., & Dumin, M. (1986). Access to occupations through social ties. Social Networks, 8(4), 365–385.Google Scholar
  52. Lin, N., Ensel, W. M., & Vaughn, J. C. (1981). Social resources and strength of ties: Structural factors in occupational status attainment. American Sociological Review, 46(4), 393–405.Google Scholar
  53. Link, A. N., & Yang, U. Y. (2018). On the growth of Korean technoparks. International Entrepreneurship and Management Journal, 14(2), 405–410.Google Scholar
  54. Lucas, R. E., Jr. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42.Google Scholar
  55. Mahoney, J. T., & Kor, Y. Y. (2015). Advancing the human capital perspective on value creation by joining capabilities and governance approaches. Academy of Management Perspectives, 29(3), 296–308.Google Scholar
  56. Makadok, R. (2001). Toward a synthesis of the resource-based and dynamic-capability views of rent. Strategic Management Journal, 22(5), 387–401.Google Scholar
  57. Markin, E., Swab, R. G., & Marshall, D. R. (2017). Who is driving the bus? An analysis of author and institution contributions to entrepreneurship research. Journal of Innovation and Knowledge, 2(1), 1–9.Google Scholar
  58. Marsden, P. V., & Hurlbert, J. S. (1988). Social resources and mobility outcomes: A replication and extension. Social Forces, 66(4), 1038–1059.Google Scholar
  59. Mas-Verdu, F., Ribeiro, D., & Dobón, S. R. (2010). Government policies and services: An approach to the international context. The Service Industries Journal, 30(1), 1–10.Google Scholar
  60. Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics, 110(3), 681–712.Google Scholar
  61. Meglino, B. M., & Ravlin, E. C. (1998). Individual values in organizations: Concepts, controversies, and research. Journal of Management, 24(3), 351–389.Google Scholar
  62. Molloy, J., & Barney, J. (2015). Who captures value created with human capital? A market-based view. Academy of Management Perspectives, 29(3), 309–325.Google Scholar
  63. Moran, P. (2005). Structural vs. relational embeddedness: Social capital and managerial performance. Strategic Management Journal, 26(12), 1129–1151.Google Scholar
  64. Moran, P., & Ghoshal, S. (1999). Markets, firms, and the process of economic development. Academy of Management Review, 24(3), 390–412.Google Scholar
  65. Morris, S. S., Alvarez, S. A., Barney, J. B., & Molloy, J. C. (2017). Firm specific human capital investments as a signal of general value: Revisiting assumptions about human capital and how it is managed. Strategic Management Journal, 38(4), 912–919.Google Scholar
  66. Nahapiet, J., & Ghoshal, S. (1998). Social capital, intellectual capital and the organizational advantage. Academy of Management Review, 23(2), 242–266.Google Scholar
  67. Nieto, M., & González-Álvarez, N. (2016). Social capital effects on the discovery and exploitation of entrepreneurial opportunities. International Entrepreneurship and Management Journal, 12(2), 507–530.Google Scholar
  68. North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.Google Scholar
  69. Olugbola, S. A. (2017). Exploring entrepreneurial readiness of youth and startup success components: Entrepreneurship training as a moderator. Journal of Innovation and Knowledge, 2(3), 155–171.Google Scholar
  70. Peng, M. W., Sun, S. L., Pinkham, B., & Chen, H. (2009). The institution-based view as a third leg for a strategy tripod. Academy of Management Perspectives, 23(3), 63–81.Google Scholar
  71. Pereira, A. A. (2006). Biotechnology foreign direct investment in Singapore. Transnational Corporations, 15(2), 99–124.Google Scholar
  72. Peteraf, M. A. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14(3), 179–191.Google Scholar
  73. Podolny, J. M., & Baron, J. N. (1997). Resources and relationships: Social networks and mobility in the workplace. American Sociological Review, 62(5), 673–693.Google Scholar
  74. Polloni, A., Massey, D. S., Ceballos, M., Espinosa, K., & Spittel, M. (2001). Social capital and international migration: A test using information on family networks. American Journal of Sociology, 106(5), 1262–1298.Google Scholar
  75. Popescu, L., Iancu, A., Vasile, T., & Popescu, V. (2018). Stress and burnout of human resources at the level of Mehedinti county–Romania organizations. Economic Research, 31(1), 498–509.Google Scholar
  76. Possas, M. L., Salles-Filho, S., & da Silveira, J. M. (1996). An evolutionary approach to technological innovation in agriculture: Some preliminary remarks. Research Policy, 25(6), 933–945.Google Scholar
  77. Putnam, R. D. (1993). Making democracy work. In Princeton University press. New Jersey: Princeton.Google Scholar
  78. Putnam, R. D. (1995). Bowling alone: America’s declining social capital. Journal of Democracy, 6(1), 65–78.Google Scholar
  79. Putnam, R. D. (2000). Bowling alone: Collapse and revival of American community. New York: Simon and Schuster.Google Scholar
  80. Rebelo, S. (1991). Long-run policy analysis and long-run growth. Journal of Political Economy, 99(3), 500–521.Google Scholar
  81. Riley, S. M., Michael, S. C., & Mahoney, J. T. (2017). Human capital matters: Market valuation of firm investments in training and the role of complementary assets. Strategic Management Journal, 38(9), 1895–1914.Google Scholar
  82. Romer, P. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002–1037.Google Scholar
  83. Routledge, B. R., & von Amsberg, J. (2003). Social capital and growth. Journal of Monetary Economics, 50(1), 167–193.Google Scholar
  84. Rowley, T., Behrens, D., & Krackhardt, D. (2000). Redundant governance structures: An analysis of structural and relational embeddedness in the steel and semiconductor industries. Strategic Management Journal, 21(3), 369–386.Google Scholar
  85. Ruiz-Ortega, M. J., Parra-Requena, G., & García-Villaverde, P. M. (2016). Do territorial agglomerations still provide competitive advantages? A study of social capital, innovation, and knowledge. International Regional Science Review, 39(3), 259–290.Google Scholar
  86. Selten, R. (1975). Reexamination of the perfectness concept for equilibrium points in extensive games. International Journal of Game Theory, 4(1), 25–55.Google Scholar
  87. Stam, W., Arzlanian, S., & Elfring, D. (2014). Social capital of entrepreneurs and small firm performance: A meta-analysis of contextual and methodological moderators. Journal of Business Venturing, 29(1), 152–173.Google Scholar
  88. Tsai, W., & Ghoshal, S. (1998). Social capital and value creation: The role of intrafirm networks. Academy of Management Journal, 41(4), 464–476.Google Scholar
  89. Uzzi, B. (1997). Social structure and competition in interfirm networks: The paradox of embeddedness. Administrative Science Quarterly, 42(1), 35–67.Google Scholar
  90. Vallejos, R. V., Macke, J., Olea, P. M., & Toss, E. D. (2008). Collaborative networks and social capital: A theoretical and practical convergence. In L. M. Camarinha-Matos & W. Picard (Eds.), Pervasive collaborative networks (pp. 43–52). Boston: Springer.Google Scholar
  91. Walker, G., Kogut, B., & Shan, W. (1997). Social capital, structural holes and the formation of an industry network. Organization Science, 8(2), 109–125.Google Scholar
  92. Wang, H. C., & Barney, J. B. (2006). Employee incentives to make firm-specific investments: Implications for resource-based theories of corporate diversification. Academy of Management Review, 31(2), 466–476.Google Scholar
  93. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Asia-Pacific Industrial and Business ManagementNational University of KaohsiungKaohsiungTaiwan
  2. 2.Department of Asia-Pacific Industrial and Business ManagementNational University of KaohsiungKaohsiungTaiwan

Personalised recommendations