Academic journal article Journal of Business Economics and Management

Social Capital and Investment in R&D: New Externalities

Academic journal article Journal of Business Economics and Management

Social Capital and Investment in R&D: New Externalities

Article excerpt

1. Introduction

In this work we study the interaction effects between social capital and R&D. This is an important topic to approach since social capital, in the form of social networks, can help knowledge sharing between researchers who work in close proximity to each other, in an informal way, through "cheap talk" at lunch, etc. The presence of social capital can introduce distortions in market allocations due mainly to two of its features: the failure of a market for social capital and the impact it can have on R&D due to research networks. The first reason is justified, as firms do not pay for social capital when they contract workers; they pay for hours of work and, at most, for the level of qualifications. This may be because the features usually included in social capital (confidence, truth, informal networks) are more difficult to evaluate and monitor than academic degrees or years of schooling. The second reason is based on the importance of social networks between researchers in R&D productivity. An example often given is the importance of networks of researchers in Silicon Valley. Another is the proximity of research staff in universities. The notion of clusters and the creation of a knowledge based economy in the European Union, goals of the Lisbon Agenda, are also based on the idea of networks, as discussed in Melnikas (2005).

Social capital is a sociological concept that has been introduced recently in the economic growth literature. The definition of Putnam (1993) refers to this concept as "features of social organization, such as trust, norms, and networks that can improve the efficiency of society by facilitating coordinated actions". Most of the empirical literature has found a positive influence of social capital on economic growth, although it varies considerably (examples include Knack, Keefer (1997); Temple and Johnson (1998); Whiteley (2000), and Rupasingha et al. (2000)). The introduction of social capital in growth models is still uncommon, but a good example is Beugelsdijk and Smulders (2009), who also test the model against empirical data using the European Values Survey. Economic agents like to socialize (bonding), which they do by losing consumption, since participation in social networks is time-consuming and erodes time available for work. Hence, higher levels of social capital may decrease economic growth. However, participation in community networks (bridging) reduces the incentive for rent seeking and cheating, and so through this channel, a higher level of social capital produces positive effects on economic growth (1).

The positive connection between social capital and human capital accumulation was first described in Coleman (1988) and in Teachman et al. (1997) in sociological studies of high school dropouts. Grafton et al. (2007) test a theoretical growth model against empirical data to explain international country differences in productivity and find a positive impact of people's knowledge connections on productivity. Dinda (2008) uses an AK-type growth model to study the role of social capital in the production of human capital and in economic growth and compares theoretical results with empirical results finding a positive effect of social capital. In an endogenous growth model framework Sequeira and Ferreira-Lopes (2011) also study the interactions between human and social capital and document the decline in social capital reported by Putnam (2000). Piazza-Giorgi (2002) gives a comprehensive survey of empirical results on this topic.

Literature on the links amongst social capital, R&D, and economic growth is also very recent, scarce, and empirical. For example, Landry et al. (2002), De Clercq and Dakhli (2004), Lee et al. (2005), and Doh and Acs (2010) test empirically if there is indeed a connection and find positive effects of social capital in R&D and in innovation activities, although estimates vary widely.

No previous attempt that we know of has brought the positive connection between social capital and R&D to an endogenous growth model. …

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