Academic journal article Journal of Business Economics and Management

How Important Are CSR Companies for Nations' Growth?

Academic journal article Journal of Business Economics and Management

How Important Are CSR Companies for Nations' Growth?

Article excerpt

1. Introduction

The literature examining the impact of corporate social behaviour on economic growth is relatively small. Somehow related studies on social capital issue can be found in the works of Putnam (1995), Helliwell and Putnam (1995), Hall and Jones (1996), Knack and Keefer (1997). Coleman (1988) looks for the differences in growth rates through trust, societal structure, social capital role in creation of human capital, economic payoffs to social capital and the role of civil society. More recent study of Espigares and Lopez (2006) reveal a positive link between corporate social responsibility indicators and economic growth in OECD countries. They find positive and statistically significant (although not large) link between CSR and growth within the EU family members. Their research was limited to some variables associated to economic growth, not directly to growth itself. Related studies point to the possible positive nexus between firms' socially acceptable behaviour and growth progress. In line with the study of Espigares and Lopez (2006) we find CSR firms to positively contribute to nations' economic growth. Previous studies on CSR--growth nexus were limited in data and lacking in clear growth model specification. Under well established Barro and Sala-i-Martin (2004) and Mankiw et al. (1992) we were able to find empirical evidence that CSR behaviour is important for nations' growth. Currently, CSR behaviour (measured through CSR firms performance indicators as proxy) on nations' economic growth is positive but limited. We find two clear reasons for such condition. First is that governments' are presently lacking in active CSR policies integrated in sustainable development policies. The second reason is that present CSR policy actions are badly structured--too regulatory and less market oriented. Countries with a clear CSR policy agenda strongly market oriented register bigger impact of CSR behaviour on growth (Germany, Norway, Sweden). Undoubtedly, CSR behaviour is to become a more important growth determinant in the future. Nations' with larger share of CSR companies will experience higher and more persistent growth rates by eliminating jobless growth and working poor limitations constraining future growth.

First section of the paper builds a conceptual framework for studying macroeconomic mechanisms and models if and how companies' socially responsible behaviour can affect economic growth. Section 2 provide related literature review regarding the social impact hypothesis. In section 3 a review on data and methodology we use in our analysis is presented. In section 4 we examine the effect of CSR companies on real output finding a positive relationship between CSR and country's real output and present model robustness test results to check if the results are robust to possible bias problem. We present our findings in the concluding section 5.

2. Corporate social responsibility and growth--is there a nexus?

The so-called modern era of corporate social responsibility is very closely associated with the work of Bowen (1953). He pointed out that the corporate decision making process should not be focused solely on the economic issues but should also monitor social consequences of the usual business activities.

Additional attempts to define social responsibility of business occurred during the 1970s and the period of neo-classical economic doctrine. First, not to be forgotten is a very strong proponent of neo-classical economy and profit pursuit--Milton Friedman. He was arguing that business does not have responsibility, but people do have it. Managers could have responsibilities. For him a corporation is "an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense" Friedman (2007). Only the corporate executives are to be held responsible. Their responsibility is "to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom". …

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