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CFPR/TUP Working Paper Series
Social Capital and Economic Well-being
Working Paper No. 15

Farhad Ameen, Munshi Sulaiman
November - 2006

In the first paper titled ‘Does it pay to be social?,’ Ameen uses OLS estimation to investigate the effect of informal and formal social capital on economic well-being. Results suggest a positive association between informal social interactions and per capita household expenditure, for both ultra poor and wealthier households, although the effect is possibly smaller for the ultra poor. The relation between formal social capital and household expenditure is more complex as the effect of membership varies by the type of group or organization. Given the relatively early stage of the programme, the impact of the CFPR/TUP project in developing social capital is still unclear. While membership in formal organizations is positively related to per capita expenditure on average, the effect appears to be negative for the ultra poor, a finding in need of additional exploration. The paper, however, does not explicitly address the issue of simultaneous determination of social capital and economic wellbeing and leaves open the question of the effect of income on the level of social capital. The results establish an association between social capital and household expenditure without definitively establishing causality.

In the second paper titled ‘Do relationships matter? an empirical study of social capital in rural Bangladesh,’ Sulaiman explicitly addresses the issue of causality focusing on informal social capital. Indicators of the quality of informal relations with neighbours and relatives are used to create an index of horizontal social capital, which tests the effect on well-being. To investigate causality, measures of ‘trust’ are used as instrumental variables. Sulaiman finds a strong positive influence of social relations on economic well-being after controlling for a number of variables, while the influence of income on social relations is not significant. In addition, he Social capital and economic well-being investigates ways in which social relations matter. Social relations are found to be correlated with the extent of village-level conflict, informal insurance mechanisms and information flows. For the ultra poor who subsist on selling labour in the informal labour market, obtaining work is probably the most important benefit flowing from the social capital developed through the various channels of informal social networks.

These two papers begin to explore the impact of complex social networks and ties on the economic well-being of households in rural Bangladesh. More intensive study of rural social networks will undoubtedly follow to further inform policy makers in governmental and nongovernmental agencies and provide a more conclusive portrait of social capital among the ultra poor in rural Bangladesh.

 
 
 

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