Capital Inflow, Financial Development, Economic and Political Openness and Social Capital: A Study of Indonesian Experience

Abstract

The article analyzes the influence capital inflow, financial development, economic liberalization, and democratization on social capital development. Findings show that the impact of FDI on social capital growth differs from that emanating from portfolio investment, returning negative and positive coefficients. However, there is little doubt that financial development has strong and positive influence of social capital. Indicators of economic development, positively influence social capital, while poverty and freedom from corruption variable posit negative influence on social capital. Social capital needs the presence of other forms of capital (physical, financial) to develop, which is why level of domestic credit, and portfolio investment, have positive influence on it. Since the development context also plays an important role in influencing the importance of social capital, indicators of development HDI, gross domestic capital formation, by creating a socioeconomic environment that favors the conduct of economic and social activities, fosters the growth and development of social capital. On the contrary, indicators of deprivation and depravation (poverty) by impacting negatively on indicators of economic growth and development, adversely affect the growth and development of social capital.