Trust or bust: Growth effects of knowledge, human and social capital revisited

Abstract

• Trust appears to be one of the main drivers of productivity growth across EU subnational regions. • Our estimations suggest the presence of gravity effects emanating from social and human capital in which some regions lose against others nearby that have more abundant social and human capital. • Productivity gains prompted by social capital appear to diminish over time. Social capital consists of trust, collective values, and shared norms. It helps society to work efficiently and, hence, promotes knowledge accumulation and growth. This paper identifies the contribution of social capital to differences in total factor productivity among European subnational regions, but, unlike other studies, it focuses on the effects of interregional differences in social capital. To do so, the paper employs a spatial Durbin model of a social-capital extended Cobb-Douglas production function. Our results suggest that transfers of knowledge might be secondary to the presence of collectivism and human capital in knowledge-generating regions. Although knowledge can cross boundaries, an absence of skills and trust limits local growth capacity. Our estimations also suggest the presence of gravity effects emanating from social and human capital in which some regions lose against others nearby that have more abundant social and human capital.