Aggregate returns to social capital: Estimates based on the augmented augmented-Solow model

Abstract

We extend the augmented-Solow model to estimate the aggregate output elasticity and depreciation rate of social capital that characterize aggregate returns. The estimated output elasticity is approximately 0.1. While social capital positively affects economic growth, the magnitude is much smaller than that of other production inputs. The estimated depreciation rate is at least 10% per annum, which is higher than that of physical capital. The median value of the implied aggregate return of social capital is approximately 19.11% at the global level. In OECD countries, it is likely to be considerably smaller than the individual returns, suggesting the fallacy of composition. While there is no systematic relationship between GDP per capita and returns to physical or human capital, the aggregate returns to social capital seem to be negatively related to the level of development.