JUNE 6

IPD/JICA TASKFORCE MEETING DEAD SEA, JORDAN

GO SHIMADA

Social Capital and Industrial Development – Inside the black

box1

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 1990-2002 ） . 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

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

6

World Value Survey (WVS)

WVS 2010-2014 contains survey data on respondents' answer on 265 items from 76817 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: 1.697909 SD: 0.459191

7

Armenia

Australia

Azerbaijan

Chile

ChinaColombia

EcuadorEgyptEstonia

Germany

India

Japan

Jordan Kazakhstan

Korea, Republic of

MalaysiaMexico

Morocco

Netherlands

PakistanPeruPhilippines

PolandRomania

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Turkey

Ukraine

United States

050

000

1000

0015

0000

Val

ue a

dded

per

wo

rke

r in

20

10

0 20 40 60 80Trust (%)

Value added per worker (2005 dollars per year) Fitted values

(Source: Shimada 2014)

Trust and value added per worker

Data: WVS 2010-2014 and WDR 2013 (2005 dollars per year)

8

Algeria

Chile

China

Colombia

Cyprus

Ecuador

Egypt

GhanaIndia

Japan

Jordan

Korea, Republic ofMalaysia Mexico

Morocco

Netherlands

Nigeria

PakistanPeruPhilippines

Rwanda

SingaporeSpain SwedenTrinidad and Tobago

Tunisia

Turkey

United States

Uruguay

Zimbabwe

0.5

11.

5T

FP

(re

lativ

e to

the

US

)

0 20 40 60 80Trust (%)

Fitted values TFP

(Souce: Shimada 2014) (Data: WVS 2010-1014, UNIDO2014)

Trust and TFP

9

Armenia

Australia

Azerbaijan

Chile

ChinaColombia

Ecuador Estonia

Germany

India

JapanJordan

Kazakhstan

MalaysiaMexico

Morocco

Netherlands

Pakistan

Peru

PhilippinesPoland

Romania Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Turkey

Ukraine05

0,00

01

00,0

001

50,0

00V

alu

e ad

ded

per

wor

ker

(Pri

mar

y se

cto

r)

0 20 40 60 80Trust (%)

95% CI Fitted values

Primary

(Souce: Shimada 2014) (Data: WVS 2010-1014, WDR2013 2005 dollar per year)

Trust and value added in primary sector

Armenia

Australia

AzerbaijanChile

ChinaColombia

EcuadorEstonia

Germany

India

Japan

Jordan KazakhstanMalaysia MexicoMorocco

Netherlands

PakistanPeruPhilippines

PolandRomania

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

TurkeyUkraine

01

00,0

00

200

,00

03

00,0

00

Va

lue

adde

d pe

r w

orke

r (s

eco

nd

ary

se

cto

r)

0 20 40 60 80Trust (%)

95% CI Fitted valuessecondary

(Souce: Shimada 2014)

(Data: WVS 2010-1014, WDR2013 2005 dollar per year)

Trust and value added in secondary sector

Armenia

Australia

Azerbaijan

Chile

ChinaColombia

EcuadorEstonia

Germany

India

Japan

Jordan KazakhstanMalaysia

Mexico

Morocco

Netherlands

PakistanPeruPhilippines

PolandRomania

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Turkey

Ukraine

05

0,00

01

00,0

001

50,0

00V

alu

e ad

ded

per

wor

ker

(ter

iary

se

ctor

)

0 20 40 60 80Trust (%)

95% CI Fitted valuesTertiary

(Souce: Shimada 2014) (Data: WVS 2010-1014, WDR2013 2005 dollar per year)

Trust and value added in teriary sector

model1 model2

Dependent variable Value addedper worker TFP

trust 1082.3539 0.0055

[4.21]*** [2.33]**gini_index -361.786 -0.0037

[-0.58] [-0.69]

_cons 16404.472 0.4557

[0.61] [1.76]*N 32 28

R-squared 0.4419 0.307Adj-R-squared 0.4034 0.2516

* p<0.1, ** p<0.05, *** p<0.01

10

Algeria

Armenia

Australia

Azerbaijan

Belarus

Chile

China

Colombia

Cyprus

Ecuador

Egypt

Estonia

Germany

Ghana

India

Iraq

Japan

Jordan

KazakhstanKorea, Republic of

Kyrgyzstan

Lebanon LibyaMalaysia

Mexico

Morocco

Netherlands

NigeriaPakistanPalestine

PeruPhilippines

Poland

Romania

Russia

Rwanda

Singapore

Slovenia

Spain

Sweden

Taiwan

Trinidad and Tobago

Tunisia

Turkey

Ukraine

United States

Uruguay

Uzbekistan

Yemen

Zimbabwe

020

4060

80T

rust

60 70 80 90 100Family trust

(Source: Shimada 2014) (Data: WVS 2010-1014)

Family trust and general trust

Answer type:1.Trust completely2.Trust somewhat3.Do not trust very much4.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

Armenia

Australia

Azerbaijan

Chile

ChinaColombia

Ecuador EgyptEstonia

Germany

India

Japan

JordanKazakhstan

Korea, Republic of

MalaysiaMexico

Morocco

Netherlands

PakistanPeru Philippines

PolandRomania

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Turkey

Ukraine

United States

050

000

1000

0015

0000

Val

ue a

dded

per

wo

rke

r in

20

10

60 70 80 90 100Family trust (%)

Value added per worker (2005 dollars per year) Fitted values

(Source: Shimada 2014) (Data: WVS 2010-1014, WDR 2013 (2005 dollars per year))

Family trust and value added per worker

Algeria

Chile

China

Colombia

Cyprus

Ecuador

Egypt

GhanaIndia

Japan

Jordan

Korea, Republic ofMalaysiaMexico

Morocco

Netherlands

Nigeria

PakistanPeru Philippines

Rwanda

Singapore SpainSwedenTrinidad and Tobago

TunisiaTurkey

United States

Uruguay

Zimbabwe

0.5

11.

5T

FP

60 70 80 90 100Family trust

TFP Fitted values

(Source: Shimada 2014) (Data: WVS 2010-1014 UNIDO 2014)

Family trust and TFP

model3 model4

Dependent variable Value addedper worker TFP

trust_family -1749.146 -0.0052

[-2.75]** [-1.12]gini_index -1382.74 -0.0114

[-2.11]** [-2.32]**

_cons 231679.07 1.3368

[3.87]*** [2.92]***N 32 28

R-squared 0.2868 0.1966Adj-R-squared 0.2376 0.1323

* p<0.1, ** p<0.05, *** p<0.01

12

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

Armenia

Australia

Azerbaijan

Chile

ChinaColombia

Ecuador EgyptEstonia

Germany

India

Japan

JordanKazakhstan

Korea, Republic of

MalaysiaMexico

Morocco

Netherlands

PakistanPeru Philippines

PolandRomania

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Turkey

Ukraine

United States

050

000

1000

0015

0000

Val

ue a

dded

per

wo

rke

r in

20

10

20 40 60 80 100Family bonding (%)

Value added per worker (2005 dollars per year) Fitted values

(Source: Shimada 2014) (Data: WVS 2010-1014)

Family bonding and value added per worker

Algeria

Chile

China

Colombia

Cyprus

Ecuador

Egypt

GhanaIndia

Japan

Jordan

Korea, Republic of MalaysiaMexico

Morocco

Netherlands

Nigeria

PakistanPeru Philippines

Rwanda

Singapore SpainSwedenTrinidad and Tobago

TunisiaTurkey

United States

Uruguay

Zimbabwe

0.5

11.

5T

FP

20 40 60 80 100Family_bonding

TFP Fitted values

(Source: Shimada 2014) (Data: WVS 2010-1014 UNIDO 2014)

Family bonding and TFP

model5 model6

Dependent variable Value addedper worker TFP

Family_bonding -1168.788 -0.0049

[-4.63]*** [-2.07]**gini_index -539.3578 -0.0064

[-0.93] [-1.27]

_cons 124956.18 1.0103

[5.44]*** [5.03]***N 32 28

R-squared 0.4827 0.2798Adj-R-squared 0.447 0.2222

* p<0.1, ** p<0.05, *** p<0.01

13

Armenia

Australia

Azerbaijan

Chile

China

ColombiaEcuador Egypt

Germany

India

Japan

Jordan Kazakhstan

Korea, Republic of

MalaysiaMexico

Morocco

Netherlands

PakistanPeru

Philippines

Poland

Romania Russia

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Turkey

Ukraine

United States

050

000

1000

0015

0000

Val

ue a

dded

per

wo

rke

r

0 20 40 60 80 100Confidence in civil service

(Source: Shimada 2014) (Data: WVS 2010-1014 UNIDO 2014)

Confidence in civil service and value added per worker

Armenia

Australia

Azerbaijan

Chile

China

ColombiaEcuadorEgypt

Estonia

Germany

India

Japan

Jordan Kazakhstan

Korea, Republic of

MalaysiaMexico

Morocco

Netherlands

PakistanPeru

Philippines

Poland

Romania Russia

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Turkey

Ukraine

United States

050

000

1000

0015

0000

Val

ue a

dded

per

wo

rke

r

0 20 40 60 80 100Confidence in government

(Source: Shimada 2014) (Data: WVS 2010-1014 UNIDO 2014)

Confidence in govenment and value added per worker

model7 model8 model9 mode10

Dependent variable Value addedper worker TFP

Value addedper worker TFP

civiv_confidence 33.1856 -0.0018

[0.10] [-0.80]govenment_confidence -254.8138 -0.0015

[-0.86] [-0.63]gini_index -1331.713 -0.0114 -1223.751 -0.0108

[-1.80]* [-2.34]** [-1.66] [-2.19]**

_cons 81409.001 0.9979 89486.505 0.9564

[2.49]** [4.26]*** [3.11]*** [4.35]***N 31 29 32 29

R-squared 0.1059 0.1847 0.1231 0.1772Adj-R-squared 0.042 0.122 0.0627 0.1139

* p<0.1, ** p<0.05, *** p<0.01

AlgeriaArmenia

Australia

Azerbaijan

Belarus

Chile

China

Colombia

CyprusEcuador

Egypt Germany

Ghana

India

Iraq

Japan

Jordan

Kazakhstan

Korea, Republic of

Kyrgyzstan

Lebanon Libya

Malaysia

Mexico

Morocco

Netherlands

New Zealand

NigeriaPakistanPalestine

Peru

Philippines

PolandRomania

Russia

Rwanda

Singapore

Slovenia

Spain

Sweden

Taiwan

Trinidad and Tobago

Tunisia

Turkey

Ukraine

United States

Uruguay

Uzbekistan

Yemen

Zimbabwe

020

4060

8010

0C

onf

iden

ce in

gov

ern

men

t

0 20 40 60 80 100Confidence in civil service

(Source: Shimada 2014) (Data: WVS 2010-1014)

Confidence in civil service and government

14

Algeria

Armenia

Australia

Azerbaijan

Belarus

Chile

China

ColombiaEcuador

Egypt

Estonia

Germany

Ghana

India

Iraq

Japan

Jordan

KazakhstanKorea, Republic of

Malaysia

Mexico

Morocco

Netherlands

NigeriaPakistan

PeruPhilippines

Poland

Romania

Russia

Rwanda

Singapore

Slovenia

Spain

Sweden

Tunisia

Turkey

Ukraine

United States

Uruguay

Uzbekistan

Yemen

Zimbabwe

020

4060

80T

rust

20 30 40 50 60 70gini

Trust Fitted values

(Source: Shimada 2014) (Data: WVS 2010-1014 WDI 2014)

Trust and Gini

Algeria

Armenia

Australia

Azerbaijan

Belarus

Chile

China

Colombia

Cyprus

Ecuador

Egypt

Estonia

Germany

Ghana

India

Iraq

Japan

Jordan

KazakhstanKorea, Republic of

LebanonMalaysia

Mexico

Morocco

Netherlands

NigeriaPakistan

PeruPhilippines

Poland

Romania

Russia

Rwanda

Singapore

Slovenia

Spain

Sweden

Trinidad and Tobago

Tunisia

Turkey

Ukraine

United States

Uruguay

Uzbekistan

Yemen

Zimbabwe

020

4060

80T

rust

0 50000 100000 150000GDP per capita

Trust Fitted values

(Source: Shimada 2014) (Data: WVS 2010-1014 WDI 2014)

Trust and GDP per capita

Model11 Model112

Dependent variable Trust Family bonding

gini_index -0.5136 0.1864

[-1.77]* [0.71]Per_capita_GDP 0.0006 -0.0007

[4.24]*** [-4.92]***_cons 38.2791 63.7695

[3.21]*** [5.91]***

N 43 43

R-squared 0.415 0.425Adj-R-squared 0.3857 0.3963

* p<0.1, ** p<0.05, *** p<0.01

15

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): 544-567.

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 127.4 (2012): 1663-1705.

Knack, Stephen, and Philip Keefer. "Does social capital have an economic payoff? A cross-country investigation." The Quarterly journal of economics112.4 (1997): 1251-1288.

Porta, Rafael La, et al. Trust in large organizations. No. w5864. National Bureau of Economic Research, 1996.

17