Debating the Relationship Between Social Capital and Economic Development in Ethiopia

Abstract

This paper aims to examine the interplay between social capital and economic development in the context of Ethiopia. To achieve this objective, secondary data about key indicators of social capital, economic development, and empirical literature from scholarly works is reviewed. The analysis reveals that social capital has become a crucial driver of economic development, as it serves as a connector that enables individuals to utilize available resources for mutual benefits. However, the benefits of social capital are often complicated by the presence of externalities, such as group members and leadership effects. Additionally, social capital strengthens community-based institutions and facilitates discussions about social and economic issues. Despite the importance of social capital, Ethiopians have not prioritized its strengthening, as it is not emphasized in political narratives and policy frameworks. The link between social capital indicators and economic development is also limited, with all indicators impacting labor productivity and, in turn, affecting economic development. Therefore, public policy must be directed towards improving social capital through cooperation, trust, and shared mission, as well as human capital to enhance its quality, and to grow per capita output and consumption. The study concludes that critical research is needed to investigate the impact of neglecting social capital on economic development in Ethiopia.