Social capital, information flows, and income creation in rural Canada: a cross-community analysis

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Abstract

We propose that (I) social capacity, defined as the ability of people to organize and use their social capital, does influence their level of income, and that (II) this is because social capital use facilitates the flow of income-related knowledge and information between economic agents. Tests of these propositions based on a framework classifying social capital as a productive asset embedded in four types of social relations, and using data on household and community social capital for rural Canada, revealed some supportive evidence.

Introduction

Understanding the crucial factors that influence the income levels of rural communities may hold the key to effective rural development policy-making. Various theoretical models have emerged in the growth literature aiming to test factors, such as differences in technical progress, public spending, macroeconomic stability and initial endowments of physical and human capital, as explanations for cross-country and interregional variations in the level and growth rate of income (Barro and Sala-i-Martin, 1995, Datt and Ravallion, 1998). The basic frameworks of such models have also been applied to analyzing the role of social capital and other non-economic factors in economic growth. It has been suggested and empirically confirmed that social capital, viewed as a form of productive asset and resource embedded in social structures and relations, does facilitate economic actions and performance (Helliwell and Putnam, 1995, Knack and Keefer, 1997, Temple, 1998, Temple and Johnson, 1998, Whiteley, 2000).

Interest in the role of social capital in economic development was rekindled by the work of Putnam (1993) explaining why the level of income in the North of Italy was higher than that in the South. His research found that variations in per capita income between the two regions were explained by differences in social structure, with horizontal structures common in the North and hierarchical or vertical forms in the South. In subsequent research Amin (1994) showed that the structure of the network of social relationships within which firms operated in Italy similarly affected their performance. Thus, the evidence suggests that social capital, viewed as networks of social relationships, has an impact on economic performance which, as found in some cases, is at least as strong as that of human capital or education (Whiteley, 2000). It is also argued that the more developed these social networks (i.e., the denser and stronger their component relationships), the greater is the stock of social capital (Barr, 2000).

Granted that social capital of the form described above contributes to economic performance, what are the specific mechanisms through which it might influence such performance? Following Barr (2000), it can be argued that social capital in the form of networks of social relationships embedded within bounded institutional or diffused community structures, influences economic performance partly because such networks facilitate the flow of technical information and knowledge that helps reduce economic transaction costs as well as serve as crucial input in the production process. The suggestion that networks of social relationships within institutions and communities facilitate the flow of vital information and knowledge has long been argued by various sociologists including Coleman et al. (1966) and Granovetter (1973). For instance, according to Coleman et al. (1966), the more deeply integrated a physician was in her local medical community, that is, the more links and contacts she was involved in, the earlier she got to know about and use a new drug (Barr, 2000). Granovetter, 1973, Granovetter, 1995 found that strong networks of relationships allowed job seekers to obtain vital information on job opportunities. Fernandez et al. (2000) found that employers who hired new workers via employee referrals gained economic returns in the form of better hiring outcomes. Thus, a common theme in the growing literature on social capital suggests that it contributes to achieving valued economic outcomes because of its ability to facilitate technical information and knowledge flows within the economy.

Our objective in this paper is to provide a theoretical and empirical analysis of the extent to which social capital influences income levels in rural Canada. Two interdependent research questions are explored: “How important is the role of social capital in generating income in the communities of rural Canada?” and “What is the extent to which information and knowledge flows, via social relationships and networks in these communities, facilitate such a role?” Section 2 defines our approach to social capital within a broader social capacity framework, in which different types of social relations and processes embedded in community institutions and organizations are viewed as generating social capacity for achieving valued economic outcomes. Section 3 specifies an appropriate empirical framework in which our two research questions are formulated and modeled. In section 4 we estimate the models formulated in the previous section using cross-sectional data on household and community social capital from the New Rural Economy (NRE) project of the Canadian Rural Revitalization Foundation (CRRF). The empirical results are analyzed in Section 5. This is followed by a section summarizing the main conclusions and policy implications.

Section snippets

Social capital, information, and income

Following Coleman (1988), social capital can be defined in terms of its nature and function. It is made up of a variety of different entities all consisting of some feature of social structures. Unlike human and physical capital, which are lodged either in individual actors themselves or in physical implements of production, social capital inheres in the structure of social relations between actors and among actors. It is exemplified in various forms such as obligations and expectations,

Empirical formulations

The key propositions underlying the framework presented above are (I) that social capacity, defined as the ability of people to organize and use social capital, influences their level of income and (II) that this is partly because such social capital use generates and facilitates income-related knowledge and information flow.

Data and estimation

The models formulated above are estimated using cross-sectional data on household and community social capital from the New Rural Economy (NRE) project of the Canadian Rural Revitalization Foundation (CRRF). This project has identified 32 rural field sites within a strict framework linking them to both global and local conditions (Reimer, 2002b). For the past 5 years, researchers have been working with people in most of these sites to collect and analyze information relevant to the economic and

Empirical results

The estimation results for the two systems of equations are presented in Table 3, Table 4. Column A in Table 3 contains the estimations of the first set of , , at the household level, while column B contains the estimations of these same equations at the community level. In each of the column cells, the standardized regression coefficients are reported on top without parenthesis. Numbers reported in parenthesis are the standard errors.

Results from estimating Eq. (1), in column A, indicate a

Conclusions and policy implications

In this research we have undertaken the task of showing how social capacity, defined in terms of the availability and effective use of social capital, impacts upon income generation in rural Canada. Our objective was also to determine whether and to what extent overall social capacity, or social capital availability and use, generates income because of the facilitating role of knowledge and information flow. Thus, the key research propositions formulated were (I) that social capital

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    This paper has used data generated from the New Rural Economy (NRE) project, http://nre.concordia.ca, of the Canadian Rural Revitalization Foundation (CRRF). We greatly thank all NRE researchers and the many rural people who participated in the project for their contributions. Primary financial support for the project was provided by the Social Science and Humanities Research Council under their Strategic Grant Programme on Social Cohesion.

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