Social capital and growth: causal evidence from Italian municipalities

The macroeconomic effects of social capital are typically studied using data at country, region or, at most, province level of aggregation. However, social capital is defined by connections among agents who know each other and its effects, if any, should be detected at a more detailed level of spatial aggregation. To the best of our knowledge, this is the first study using longitudinal municipality-level data to investigate the causal link between social capital and growth. We extend earlier research by accounting for the endogeneity of all the covariates as well as unobserved heterogeneity. The evidence suggests that social capital has been a source of growth inequality in Italy between 1951 and 2001. The causal effect of social capital on growth is positive, on average, and stronger in the Centre-North of Italy. In addition, it was higher in the 1950s. The paper also presents local estimates of the growth return to social capital, which are of interest for specific sub-populations of municipalities.