The role of government in social capital and economic growth nexus: A non-linear approach

Tekdemir, Nazmiye and Varol Iyidoğan, Pelin (2024) The role of government in social capital and economic growth nexus: A non-linear approach. ACTA OECONOMICA, 74 (4). pp. 463-481. ISSN 0001-6373

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Abstract

The study examines the role of social capital in the process of economic growth with a special focus on its relationship with the institutional structures of economies. Within this framework, the study first explores whether the impact of social capital on economic growth can be assessed under different regimes based on the government size. Subsequently, in order to highlight the significance of the effective presence of the government, we analyze the threshold impact of government size for lower and upper mean values of government effectiveness. We employ a dynamic panel threshold procedure by utilizing the data from 91 countries (34 developed and 57 emerging economies) over the period 2007–2021. Our findings reveal that social capital does not always have a positive impact on economic growth. Particularly in emerging economies, when government effectiveness is below the mean value (<−0.10), regardless of the identified threshold for the government size, social capital negatively influences economic growth.

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