Social capital as a network measure provides new insights on economic growth.

Abstract

Unveiling the main drivers of economic growth is of paramount importance. Previous research recognizes the critical role played by the factors of production: capital and labor. However, the exact mechanisms that underpin Total Factor Productivity (TFP) are not fully understood. An increasing number of studies suggests that the creation and transmission of knowledge, factor supply and economic integration are indeed crucial. Yet, the need for a systematic and unifying framework still exists. Nowadays capital and labor are embedded into a complex network structure through global supply chains and international migration. Recent research has established a link between network centralities and different types of social capital. In this work we employ the OECD's Multi-Regional Input-Output and International Migration datasets to build the network representation for capital and labor of 63 economies during 10 years. We then examine the role of social capital measures as drivers of the TFP adopting an extended Cobb-Douglass production function and addressing potential issues such as multicollinearity, reverse causality and non-linear effects. Our results indicate that social capital in the factors of production networks can significantly drive economic outputs through TFP.