Social Capital, Household Welfare, and Poverty in Indonesia

Abstract

The objective of this paper is to investigate empirically the links between social capital, household welfare, and poverty in Indonesia. Specifically, the authors undertake a multivariate analysis of the role of local institutions in affecting household welfare and poverty outcomes and in determining access to services. The authors compare the impact of household memberships in local associations with the impact of human capital. They first consider six social capital dimensions: the density of associations, their internal heterogeneity, the frequency of meeting attendance, members' effective participation in decisionmaking, payment of dues, and the community orientation of associations. Second, in addition to estimating the effects on household welfare, the authors model the impact of ownership of social capital on the incidence of poverty. They also attempt to compare the returns to social capital between poor and non-poor households. Third, since the impact of social capital on household welfare is usually indirect, they attempt to measure some of these links--access to credit, asset accumulation, collective action--directly. Fourth, they revisit the question of whether social capital operates at the household level or at the village level. Fifth, the authors differentiate four types of institutions, specifically differentiating between voluntary associations and those with mandatory membership. Lastly, they revisit the question of causality.