Social Capital and Metropolitan Economic Development

Abstract

Proponents of social capital theory have long argued that it is not only in the best interest of civic life to build social capital but that social capital is vital for the economic health of communities. Yet past studies have failed to distinguish among different types of social capital and relied on inaccurate measures of economic health. This study reexamines what has become conventional wisdom by analyzing the social capital of American metropolitan areas and its impact on economic wellbeing. It improves upon past studies by examining different types of social capital (i.e. trust, group membership, social networks) and substituting the change in competitive advantage jobs from shift-share analysis for total job growth in addition to traditional economic development measures of wealth creation.

To the best of our knowledge, this is the first study to empirically test, and find significant, the long hypothesized importance of social capital in job creation at the level of the metropolitan economy. The study finds that bridging social capital positively impacts the economic welfare of communities with respect to job creation. The effect on job creation is substantial and equal to or exceeds that of many traditional factors related to urban economic growth. However, neither bridging nor bonding social capital is found to have an effect on per capita income change. Practitioners who attempt to create jobs through strategic planning, local public policy and economic development programs should incorporate bridging social capital to maximize the potential for success.

Keywords: urban economic development, social capital, regional economics

JEL Classification: J24, O10, O11, O18, O21, O47