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Social Capital Formation and Credit Access: Evidence from Sri Lanka

Masahiro Shoji (), Keitaro Aoyagi, Ryuji Kasahara, Yasuyuki Sawada () and Mika Ueyama

World Development, 2012, vol. 40, issue 12, 2522-2536

Abstract: While previous studies evaluate the impact of social capital on development outcomes, there are very few empirical studies on determinants of social capital formation. We use unique long panel data from Sri Lanka to examine the mechanism of social capital formation in an imperfect credit market. We show that households facing credit constraints reduce investments in social capital. Furthermore, temporal declines in investment persistently reduce general trust, trust in villagers, and trust in business partners. While previous studies argue that social capital improves access to informal credit, we show the reverse causality. Combining these findings suggests a potential poverty trap.

Keywords: social capital formation; credit constraints; infrastructure; South Asia; Sri Lanka (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.worlddev.2012.08.003

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