JUNE 6 IPD/JICA TASKFORCE MEETING DEAD SEA, JORDAN GO SHIMADA Social Capital and Industrial Development – Inside the black box 1

Knack and Keefer (1997) What we know from their findings  Trust and civic cooperation are associated with stronger economic performance.  Associational activity is not correlated with economic performance.  Trust and norms of civic cooperation are stronger in countries in countries with formal institutions that effectively protect property and contract rights.  La Porta et al (1997) also argued in the same line. 2

Inside the black box However, it is not clear how social capital improves outcomes. A number of studies found that social capital foster innovation, by which social capital influences per capita economic growth (e.g. Akcomak and Weel 2009 on 102 European Region in the period ）. Policy implications: public investment in R&D might not work efficiently to improve backward regions fast without social capital. Bloom et al (2012) on social capital and decentralization. 3

4 Working Practice (micro innovation) Innovation and Technological Know-how Quality as the key driver. Working Practices as the foundation of quality Level of Sophistication (Modified by this author based on John Sutton 2013)

Social Capital for Industrial Development InstitutionsGovernmentFirms Industries / Clusters Linking Bridging Bonding Btw Institutions -Industry/Clusters (Linking) : assist to promote learning (management and technological skill) Within industry/cluster and btw firms along the value chain (Bridging) : benefit of external economies to learn, to innovate and to build capabilities Within firms (Bonding): (Organizational change to increase productivity): Work team, off-line activities, flattering of hierarchies, employer and employee relations) (ILO 1998) innovation, productivity and quality control 5

Management capital as a part of social capital System making stage System working stage System management stage InstitutionsGovernmentFirms Industries / Clusters InstitutionsGovernmentFirms Industries / Clusters InstitutionsGovernmentFirms Industries / Clusters 6

World Value Survey (WVS) WVS contains survey data on respondents' answer on 265 items from people in 52 countries. Most empirical studies, such as Knack and Keefer (1997), use this survey. Trust question: “Generally speaking, would you say that most people can be trusted, or that you can’t be too careful in dealing with people?” In this study, the trust index uses the percentage of respondents in each nations replying “most people can be trusted”, deleting the ‘don’t know’ responses. Obs: 8610 Mean: SD:

Data: WVS and WDR 2013 (2005 dollars per year) 8

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Family trust and general trust Answer type: 1.Trust completely 2.Trust somewhat 3.Do not trust very much 4.Do not trust at all In this analysis, only “trust completely” is used. Family trust = Number of respondent who answered “rust completely”/Number of all respondent 11

Negative correlation between family trust and value added 12

If family trust is high, but general trust is not high, then…. 13

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Way forwards Knack and Keefer (1997) found positive correlation between social capital and economic growth, but the mechanism remains as black box. Some literature found social capital promotes innovation, but not productivity. This quick study found that social capital has positive impacts on TFP and value added per worker. However, more in depth study is needed. I started collecting data from 120 private companies in Central America (Costa Rica, Panama, El Salvador, Honduras, Nicaragua, Guatemala, Dominica, Belize) I will start collecting data from Kenyan Horticultural producing association (household N = 6,000). Based on these micro data, more in depth analysis will be done. 16

Major Reference Akçomak, I. Semih, and Bas Ter Weel. "Social capital, innovation and growth: Evidence from Europe." European Economic Review 53.5 (2009): Barr, Abigail M. "Enterprise Performance and the Functional Diversity of Social Capital." (1998). Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. "The Organization of Firms Across Countries*." The quarterly journal of economics (2012): Knack, Stephen, and Philip Keefer. "Does social capital have an economic payoff? A cross-country investigation." The Quarterly journal of economics112.4 (1997): Porta, Rafael La, et al. Trust in large organizations. No. w5864. National Bureau of Economic Research,