MEASUREMENT OF SOCIAL CAPITAL AND GROWTH: AN ECONOMIC METHODOLOGY∗

This paper develops a measure of social capital based on economic relationships and analyzes its effects on growth. Investment in social capital is modeled by using the conceptual framework for measuring physical capital services. The measure of social capital depends on expectations of income, its investment cost, inequality in society, the density of trust networks, the size of the social network and the rate of depreciation of social capital. With this methodology a database is constructed for 23 OECD countries covering the period 1970-2001 and the positive effect of social capital on economic growth is tested