1. Social Capital, Entrepreneurship, and Economic Performance Byung-Yeon Kim (Seoul National University)

2. Aims  This project aims to understand: Whether there are distinctive characteristics differentiated by continents in terms of social capital? Does social capital promote economic growth? If then which components of social capital do matter most? Through which channel does social capital affect economic prosperity? Is there any positive association between social capital and entrepreneurship?

3. Data  Data - World Values Survey (WVS): waves 1-4  WVS were conducted in four times, 1981, 1990, 1995, and 2000-2001, for 24, 43, 56, and 68 countries, respectively.  It contains detailed information on trust, social network, social norms, political orientation etc.  WVS has been used in various studies including Knack and Keefer (1997).

4. Measuring social capital across countries  The concept of social capital The early usages were mainly in studies on wage inequality or uneven inheritance (Loury, 1977; Coleman, 1988; Bourdieu, 1992). However, Putnam made this discussion extended to the association between social capital and economic growth. Recently, many scholars make efforts to disclose crucial channels which social capital affects economic growth through (Lyon, 2005; Spagnolo, 1999; Knack, 2002;, Knack and Keefer, 2001; Guiso, Sapienza and Zingales, 2000).  Quantitative measure of social capital Based on Putnam’s definition on social capital, Knack and Keefer(1995) attempted to measure the social capital across countries by using WVS.

5.  The contribution of this study in measurement Trust Generalized trust + Trust in institutions Civic norms Civic cooperation + Perception of fairness + Education virtues Networks Putnam’s group + Olson’s group Measuring social capital across countries

6.  Generalized Trust - trust: Table 1 Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?  Durlauf(2000)’s critic: who are “most people”?  Trust in various institutions: Table 2 Could you tell me how much confidence you have in them: is it a great deal of confidence, quite a lot of confidence, not yet much confidence or none at all? The police, army, parliament, the civil services, major companies, the union, and the press Measuring trust across countries

7. 1980199019952000 Asia Bangladesh20.523.3 China59.450.452.5 India33.532.838.9 Indonesia45.5 Japan37.937.639.839.7 Korea36.033.630.327.3 Philippines5.58.5 Singapore14.6 Taiwan36.9 Viet Nam38.7 Argentina23.722.417.215.5 Great Britain41.742.429.127.7 Hungary32.323.822.521.9 Russia34.723.2 S. Africa27.615.412.9 Spain32.932.128.734.5 Sweden52.159.656.663.7 United States39.449.535.235.9 Table I-1: Generalized trust

8. Table I-2: Trust in Parliament 1980199019952000 Asia Bangladesh7786.4 China78.1-90.2 India6553.341.6 Indonesia39.6 Japan26.828.424.219.8 Korea66.833.83110.3 Philippines59.360.7 Singapore- Taiwan44.1 Viet Nam94 Argentina71.516.714.510.5 Great Britain39.443.5-34.6 Hungary84.439.137.431.4 Russia43.020.818.3 S. Africa60.956.143.8 Spain46.736.934.845.2 Sweden44.045.543.549.6 United States51.541.728.237.1

9. Table I-3: Trust in civil service 1980199019952000 Asia Bangladesh71.595 China53.6-47.6 India71.053.237.9 Indonesia57.0 Japan29.333.034.929.4 Korea85.860.277.563.8 Philippines66.469.6 Singapore- Taiwan57.3 Viet Nam73.8 Argentina49.27.47.26.3 Great Britain45.644.6-41.6 Hungary70.047.950.047.2 Russia43.944.434.6 S. Africa50.348.143.6 Spain38.034.239.639.3 Sweden40.939.841.444.9 United States57.058.545.152.1

10. Table I-4: Trust in major companies 1980199019952000 Asia Bangladesh52.588.0 China31.346.942.3 India58.748.432.2 Indonesia44.5 Japan23.427.032.325.3 Korea52.835.034.428.4 Philippines63.257.7 Singapore- Taiwan51.7 Viet Nam42.5 Argentina35.424.528.423.8 Great Britain48.245.8-35.0 Hungary-32.232.8- Russia42.419.415.9 S. Africa68.766.767.0 Spain36.745.244.036.6 Sweden37.248.060.8- United States48.649.849.352.4

11. Table I-5: Trust in labor union 1980199019952000 Asia Bangladesh37.062.2 China33.0-43.0 India50.545.535.9 Indonesia33.7 Japan29.725.039.733.6 Korea58.365.755.149.1 Philippines53.855.0 Singapore- Taiwan54.7 Viet Nam71.9 Argentina30.68.29.210.9 Great Britain24.926.7-25.3 Hungary56.228.823.721.2 Russia45.038.127.6 S. Africa38.233.637.2 Spain31.338.430.228.1 Sweden45.637.741.940.3 United States37.631.831.536.6

12. Table I-6: Trust in church 1980199019952000 Asia Bangladesh97.198.3 China4.5-- India84.963.078.9 Indonesia94.9 Japan14.910.912.59.0 Korea61.257.242.046.7 Philippines94.091.0 Singapore- Taiwan60.6 Viet Nam21.7 Argentina46.545.250.958.8 Great Britain45.544.7-32.3 Hungary36.855.642.544.5 Russia59.561.957.6 S. Africa77.482.080.6 Spain49.247.548.641.8 Sweden38.235.448.343.8 United States76.567.176.475.3

13. Table I-7: Trust in army 1980199019952000 Asia Bangladesh51.971.6 China87.9-96.0 India92.473.583.3 Indonesia72.7 Japan34.023.959.561.5 Korea84.579.170.562.4 Philippines68.373.5 Singapore- Taiwan74.1 Viet Nam94.7 Argentina19.028.322.625.0 Great Britain79.980.5-81.1 Hungary-50.756.544.2 Russia65.966.565.2 S. Africa66.350.547.4 Spain60.438.542.241.3 Sweden58.547.353.343.8 United States79.247.584.481.3

14. Table I-8: Trust in the press 1980199019952000 Asia Bangladesh64.290.0 China50.0-64.3 India64.252.259.7 Indonesia52.4 Japan51.254.671.670.3 Korea67.565.864.564.9 Philippines71.169.4 Singapore- Taiwan39.1 Viet Nam80.8 Argentina46.227.432.237.6 Great Britain27.914.8-14.2 Hungary79.039.030.529.5 Russia42.238.629.4 S. Africa46.347.952.1 Spain46.247.841.840.1 Sweden26.632.128.446.2 United States49.455.927.826.3

15.  Civic cooperation: Table 2 (1) Claiming government benefits to which you are not entitled (2) Avoiding a fare on public transport (3) Cheating on taxes if you have a chance (4) Someone accepting a bribe in the course of their duties  The Perception of fairness: Table 3 Imagine two secretaries, of the same age, doing practically the same job. One finds out that the other earns considerably more than she does. The better paid secretary, however, is quicker, more efficient and more reliable at her job. In your opinion, is it fair or not fair that one secretary is paid more than the other?  Emphasis of education at home Measuring civic norms across countries

16.  Education virtues: Table 4 Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important? Please choose up to five. :good manners, independence, hard work, feeling of responsibility, imagination, tolerance and respect for other people, thrift saving money and things, determination perseverance, religious faith, unselfishness, obedience.  We divided those into two categories: relations-oriented and achievement-oriented. Measuring civic norms across countries

17. Table 2: Civic cooperation 1980199019952000 Asia Bangladesh97.798.5 China94.693.494.2 India94.693.188.3 Indonesia89.6 Japan92.993.093.2 Korea90.489.290.290.8 Philippines77.075.7 Singapore87.5 Taiwan90.1 Viet Nam95.3 Argentina89.393.189.889.5 Great Britain88.490.2-88.0 Hungary93.080.378.488.9 Russia87.282.183.5 S. Africa88.388.887.8 Spain86.887.592.088.6 Sweden93.990.786.488.8 United States91.691.194.088.5

18. Table 3: the perception of fairness 1980199019952000 Asia Bangladesh89.079.2 China94.977.588.1 India73.486.351.4 Indonesia83.8 Japan53.647.670.978.9 Korea65.672.7-87.0 Philippines69.067.1 Singapore90.2 Taiwan87.3 Viet Nam89.6 Argentina62.278.868.757.0 Great Britain65.174.1-67.1 Hungary68.686.689.281.1 Russia90.687.687.9 S. Africa55.664.6 Spain60.869.064.259.9 Sweden54.357.552.171.6 United States77.882.584.189.3

19. Table 4: Education virtues 1980199019952000 Asia Bangladesh19.256.0 China66.663.269.7 India17.826.444.3 Indonesia11.0 Japan30.033.433.558.2 Korea46.429.341.673.2 Philippines19.438.1 Singapore38.9 Taiwan31.4 Viet Nam49.7 Argentina39.123.619.415.9 Great Britain14.714.410.421.0 Hungary37.228.922.936.4 Russia41.836.935.5 S. Africa16.312.629.6 Spain24.419.416.422.9 Sweden13.911.818.517.1 United States18.417.418.537.8

20.  Networks - Putnam-type association: Table 5 : art music and educational organization, religious or church organizations - Olson-type association: Table 6 : labor union, political party, and professional organization  Through those indexes, we can recognize whether members in the country may incline to pursuing general interests (Putnam-type) or own group interests (Olson-type). Measuring network across countries

21. Table5: Putnam type associations 1980199019952000 Asia Bangladesh27.836.4 China4.45.92.9 India24.616.2 Indonesia- Japan6.46.311.510.8 Korea14.324.841.730.6 Philippines16.719.3 Singapore16.8 Taiwan17.6 Viet Nam13.9 Argentina7.56.524.212.3 Great Britain14.512.9-7.6 Hungary-6.812.58.2 Russia3.15.61.8 S. Africa60.035.4 Spain9.75.028.76.6 Sweden10.911.525.448.7 United States33.934.257.747.4

22. Table 6: Olson type associations 1980199019952000 Asia Bangladesh13.119.6 China20.813.85.5 India16.69.6 Indonesia- Japan7.04.611.54.9 Korea5.08.212.05.7 Philippines7.54.2 Singapore2.9 Taiwan15.5 Viet Nam17.7 Argentina7.41.38.02.9 Great Britain11.69.7-3.8 Hungary-13.38.64.2 Russia24.914.78.2 S. Africa28.86.8 Spain4.52.510.22.5 Sweden21.626.931.029.1 United States12.312.835.719.5

23.  Findings Asia is distinguished from other continents in several points. ① The level of trust in government, unions, and the press is high. ② Civic cooperation is relatively high. ③ The levels of achievement-oriented and perception of fair are comparatively high.  In conclusion, in Asia, main mechanism generated trust in organizations or social capital is based on civic cooperation, education virtues related to achievement oriented, and perception of fair. Comparing social capital across continents

24. Social capital among continents Asia North America Latin America EuropeAfricaEast Europe

25. China India Taiwan Bangladesh Social capital among Asian countries

26. KoreaJapan VietnamPhilippines Social capital among Asian countries

27. Great Britain SpainSweden United States Social capital in other countries

28. Argentina Hungary Russia S. Africa Social capital in other countries

29. Social Capital and Economic Growth  Literature survey Putnam (1993): Social capital plays a crucial role in reducing uncertainties and information asymmetry in transactions. Knack and Keefer (1997): Trust and civic norms are positively correlated with economic growth while the effect of networks on growth is not determined. La Porta et al (1997): Trust is weakly correlated with growth. Narayan and Pritchett (1999): they find a positive association between dense social networks and economic development.  Above studies inform us of the importance of social capital. However, there seems no consensus on which components of social capital are more decisive. This disagreement results partly from different samples.

30.  Empirical Methodology - We estimate the following cross-section equation using the data from 1980 to 2003. INST: institutions of country SECE: the enrollment rate of secondary education CAP: the share of capital formation in GDP SOCCAP: the vector of social capital-related variables. Social capital variables are the averages of the variables taken from the four survey data in 1980, 1990, 1995, and 2000. -The extension of using World Value Survey enables to choose fixed effects model and a population averaged model. Variables refer to the averages of the annual data for five years except 2000-2003. Social Capital and Economic Growth

31.  Findings Among the variable relative to social capital, the variables of associations are consistently significant with correct sign. An increase in Putnam-type associations by one standard deviation, which is 14%, bring about 8.4- 9.8% increase in the level of GDP per capita. An increase in Olson-type by one standard deviation, which is 11%, results in 11%-12% decrease in the level of GDP per capita. Social Capital and Economic Growth

32. ModelModel 1Model 2Model 3Model 4 Cross-sectionPooled OLS Panel – fixed effect Panel-population averaged model Dependent variableLog of average GDP per capita 1980-2003 Log of average GDP per capita (5 years interval except 2000-03) Constraints on executives 0.073** (2.39) 0.070** (2.06) 0.013 (1.26) 0.027 (1.18) Enrollment rate for secondary education/100 0.040*** (5.69) 0.027*** (5.67) 0.007*** (4.99) 0.010*** (6.31) Capital formation-0.013 (-0.49) -0.019 (-1.15) 0.012 (1.63) 0.011** (2.08) Trust in others0.009 (0.70) 0.023*** (3.40) 0.003 (0.79) 0.012*** (2.98) Social norms0.042 (1.39) 0.023 (1.45) 0.009 (1.26) 0.010* (1.69) Putnam-type associations 0.029*** (2.85) 0.018*** (3.26) 0.007*** (2.85) 0.006** (1.97) Olson-type associations -0.043** (-2.24) -0.028** (-2.68) -0.011** (-2.55) -0.010** (-2.41) R2R2 0.700.580.487 Number of observations 54131 Table 7: Social Capital and Economic Growth

33. Social Capital and Entrepreneurial Activity  Literature survey  Survey on various channel through which social capital affects economic performance - La Porta et al(1997): the quality of institutions. - Knack and Keefer(1997), Zak and Knack(2001): Investment.  Another possible channel: Entrepreneurship - Schumpeter(1934), Baumol(1990) and Murphy et al.(1991) : Entrepreneurship is one of the driving engines of economic growth - Social capital plays a crucial role in forming entrepreneurship. ① Social capital can reduce the effects of the uncertainty. ② Social capital removes prisoner’s dilemma. ③ Network. Transfer.

34.  Empirical Methodology (1) Using pseudo panel We construct a pseudo-panel that traces not the same individual but the same age group throughout the survey period. (2) Two stage least square 1 st stage: the individual decide whether she participates in the labor market.  we estimate the equation for the share of being employed in total population in cohort i in year t. 2 nd stage: she decides to be self-employed or paid worker.  To avoid selection bias, the predicted share of being employed is included as an independent variable at the second stage. (3) Using GMM as well as OLS We use system GMM to control for omitted variable bias, endogeneity etc. Social Capital and Entrepreneurial Activity

35.  Findings Generalized trust increases the share of workers in the total number of people in the cohort but is not precisely determined in the equation of self- employment. Social norms represented by the extent of dishonesty affect entrepreneurship negatively. The magnitude of such an effect appears substantial; a 10% increase in norms translates into a 4% increase in the share of self-employment. Putnam-type associations are positively correlated with the growth of entrepreneurship. In contrast, Olson- type associations such as trade union, political parties, and professional associations appear to hurt it. Social Capital and Entrepreneurial Activity

36. Table 8: Social Capital and the Share of the Employed ModelModel 1Model 2Model 3 Estimation MethodOLSSystem GMM Trust related variables Strangers0.031 (4.79)***0.107 (2.15)**0.100 (2.09)** Public institutions-0.028 (-2.87)***-0.114 (-3.30)***-0.105 (-3.07)*** Major companies0.026 (3.09)***0.109 (2.92)***0.099 (3.04)*** Social norm related variables Average norms0.109 (2.69)***-0.4 (-1.44)-0.369 (-1.36) Type of associations Putnam type associations -0.035 (-8.67)***-0.032 (-1.71)*-0.033 (-1.81)* Olson-type associations 0.028 (5.96)***0.01 (0.55)0.010 (0.63) Demographic variables Age0.013 (5.31)***-0.012 (-0.55)0.001 (0.29) Age squared/100-0.020 (-6.22)***0.010 (0.41)0.011 (0.49) Number of children0.04 (6.51)***0.076 (2.10)**0.067 (2.01)** Household head0.091 (4.58)***-0.096 (-0.66)-0.133 (-0.99) University graduates0.039 (1.85)*0.118 (1.21)0.086 (0.91) Economic variable Log of reported income 0.016 (1.19)-0.038 (-1.02)-0.041 (-1.19) Country related variablePer capita GDP0.055 (11.22)***0.07 (2.79)***0.073 (3.09)** AR(2) Test Sargan Test R 2 Observation 0.7400.845 0.2660.146 0.453 1096 917

37. ModelModel 1Model 2Model 3 Estimation MethodOLSSystem GMM Trust related variables Strangers-0.005 (-0.91)0.021 (0.37)0.033 (0.55) Public institutions-0.014 (-1.57)-0.101 (-2.81)***-0.094 (-2.51)** Major companies-0.005 (-0.63)0.029 (0.77)0.047 (1.14) Social norm related variables Average norms0.104 (2.73)***0.337 (2.00)**0.381 (2.07)** Achievement vs. relations-0.004 (-0.78)-0.052 (-1.77)*-0.041 (-1.33) Perception of being fair0.009 (1.13)-0.016 (-1.50)-0.016 (-1.55) Type of associations Putnam type associations0.042 (11.33)***0.048 (2.39)**0.039 (1.73)* Olson-type associations-0.046 (-10.37)***-0.054(-2.67)***-0.046 (-2.04)** Demographic variables Age0.002 (1.09)-0.014 (-0.74)-0.019 (-0.98) Age squared/100-0.003 (-1.18)0.030 (1.19)0.033 (1.41) Number of children0.035 (6.11)***0.035 (1.00)0.052 (1.39) University graduates-0.016 (-0.82)-0.076 (-0.74)-0.040 (-0.40) Economic variableLog of reported income-0.027 (-2.30)**0.14 (2.06)**0.099 (1.54) Country related variable Per capita GDP-0.042 (-9.26)***-0.109 (-2.10)**-0.121 (-2.33)** Correction term0.03 (1.03)-0.218 (-0.95)-0.039 (-0.38) AR(2) Test Sargan Test R 2 Observation 0.4630.097 0.1080.411 0.398 950 807 Table 9: Social Capital and the Share of Self-employment

38. ModelModel 1Model 2Model 3 Estimation MethodOLSSystem GMM Trust related variables Strangers-0.007 (-1.16)-0.055 (-1.25)-0.060 (-1.31) Public institutions0.002 (0.24)-0.025 (-0.98)-0.019 (-0.71) Major companies0.004 (0.42)0.027 (1.17)0.027 (1.16) Social norm related variables Average norms0.179 (4.35)***0.371 (2.28)**0.402 (2.41)** Achievement vs. relations0.005 (0.81)-0.041 (-1.51)-0.040 (-1.51) Perception of being fair0.027 (3.25)***0.000 (0.04)0.001 (0.13) Type of associations Putnam type associations0.047 (11.92)***0.042 (2.31)**0.039 (2.08)** Olson-type associations-0.046 (-9.86)***-0.049 (-2.92)***-0.046 (-2.49)** Demographic variables Age0.005 (1.99)**0.017 (2.04)**0.016 (1.99)** Age squared/100-0.006 (-2.13)**-0.013 (-1.36)-0.001 (-1.21) Number of children0.048 (7.89)***0.047 (1.93)*0.047 (1.97)** University graduates-0.006 (-0.30)0.146 (1.74)*0.143 (1.68)* Economic variableLog of reported income-0.014 (-1.12)0.002 (0.03)-0.088 (-2.12)** Country related variable Per capita GDP-0.038 (-7.75)***-0.069 (-2.10)-0.007 (-0.13) Correction term0.016 (0.53)-0.148 (-0.79)-0.150 (-0.78) AR(2) Test Sargan Test R 2 Observation 0.1010.099* 0.1360.128 0.441 964 813 Table 10: Social Capital and the Share of the Self-employed & Full-time Managers

39.  Social capital, particularly Putnam-type associations, facilitate growth. In contrast, Olson-type associations are negatively correlated with growth.  Social capital contributes to developing entrepreneurship. Especially, civic norms and types of associations matter most for entrepreneurship.  Trust in others is highest in Europe followed by North American and Asia. But trust in public institutions and social norms are highest in Asia followed by North America and Europe. Contrastingly, network associations are not well developed in Asia.  Differences in social capital among Asian countries often appear high, which imply little warranty to make a case for social capital of Asia as a whole. Conclusions