Academic journal article Economics & Sociology

Social Capital, Institutional Quality and Productivity: Evidence from European Regions

Academic journal article Economics & Sociology

Social Capital, Institutional Quality and Productivity: Evidence from European Regions

Article excerpt

Introduction

Productivity is undoubtedly one of the most important determinants of economic growth and the welfare of people. Hence, it is worthwhile to study the possible determinants of productivity. When looking at the determinants of productivity at the aggregate (country) level, the literature has mainly focussed on factors like human capital, R&D, innovations showing positive links between these factors, productivity and economic growth. However, these factors seem to be insufficient for explaining differences in the levels of productivity in different countries (Sayes, 2011). Therefore, as also pointed out by Beugelsdijk and van Schaik (2005), the research has to go beyond these standard factors of productivity and explore other possible factors, such as social capital, e.g. trust and networks, and institutional quality covering the rule of law, political stability, regulatory quality or government effectiveness, for instance.

Although many authors have emphasised the importance of social capital or institutional quality for economic development, not much empirical research can be found on the relationships between those factors and productivity (Sharpe, 2004). Also, the research has mainly focussed on trust and networks in general, but no further investigation of various dimensions of social capital, such as institutional trust, civic participation, informal and formal networks as possible factors of productivity, can be found. Furthermore, it is reasonable to assume that there may also be significant within-country differences in the social and institutional environments which could influence productivity differences in different regions. However, most of the literature on productivity focusses on the country level analysis (Dettori et al., 2012; Artige and Nicolini, 2006). As a novelty, this article aims to address all the aforementioned gaps in the previous research.

The aim of the current study is to explore the possible impact of social capital and institutional quality on the productivity levels of European countries at the regional level. More specifically, labour productivity as the most widely used measure of productivity is viewed as a dependent variable. In addition to the standard factors of productivity, as control variables institutional quality and different dimensions of social capital, such as general trust, institutional trust, informal and formal networks, are considered.

The data for calculating labour productivity indicators as well as the data for the control variables came from Eurostat. The data for social capital came from the European Values Study (see EVS, 2010) and the European Social Survey (see ESS, 2008). Based on the initial indicators from these surveys, variables describing different components of social capital were created with the help of factor analysis. In order to describe different aspects of institutional quality, often the World Bank database of the Worldwide Governance Indicators (WGI) (The World Bank, 2014) is used. Lately, new data in the form of the European Quality of Government Index have become available that provide also regional-level estimates corrected for the regional differences (Charron et al., 2014). All these data sources enable to analyse European regions at the NUTS 1 level. The number of regions covered in this analysis was limited by the countries covered in the EVS and ESS as well as data availability for the regional-level estimates of the European Quality of Government Index. Altogether, 80 regions in 23 European countries are covered in this analysis. Correlation and regression analysis are used to examine the relationships of social capital and institutional quality with productivity.

This article is organised as follows. Section 1 presents the theoretical background and Section 2 introduces the data and operationalisation. Section 3 provides and Section 4 discusses the results. Section 5 summarises the article.

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