Nonprofits in Crisis: Economic Development, Risk, and the Philanthropic Kuznets Curve

By Nuno S. Themudo | Go to book overview

3
Economic Development, Risk,
and the Nonprofit Sector in
Cross-National Perspective

CHAPTER 1 PRESENTED a robust cross-national puzzle: the philanthropic Kuznets curve (PKC). Whether measured by giving, volunteering, civic participation, nonprofit sector employment, expenditure, or other correlates such as social trust and social tolerance, nonprofit sector strength invariably displays a U-shaped relationship with respect to the level of economic development across countries. Chapter 2 proposed that risk plays an important role in explaining this surprising nonlinear relationship. A major component of the way in which economic development impacts the nonprofit sector is by influencing the level of economic risk faced by nonprofit organizations and their supporters.

The risk explanation proposed offers insights into how risk influences philanthropy and the nonprofit sector. It captures the incentives driving individuals’ and other potential supporters’ choices that lead to nonprofit weakness, and points to some of the conditions under which the nonprofit sector should, or should not, flourish. To what extent are its predictions consistent with nonprofit sector evidence, and particularly the PKC?

This chapter examines cross-national data. The first section examines the impact of economic development on philanthropy and nonprofit sector size. After disentangling cause-effect relationships, analysis of cross-national data provides compelling support for the claim that economic development is a main cause of nonprofit sector strength; that the effect is nonlinear; and, in turn, nonprofit sector strength is also an important cause of economic development. The second section shows that risk, whether indicated by macroeconomic instability, nonprofit sector vulnerability, or risk-aversion, has an inverted U-shaped relationship with economic development. Systematic mediation analysis further demonstrates that economic risk and nonprofit sector exposure to it are determined by economic development and determine nonprofit sector strength. After careful control for potentially confounding influences, analysis estimates that risk is responsible for a significant share of the impact of economic development on philanthropy and nonprofit sector size. This chapter provides, therefore, compelling evidence in support of the PKC as a causal relationship and its risk explanation. The appendix describes variables operationalization, the cross-national dataset, and methods of analysis.

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