Education, Social Capital, and Economic Development (Review of Basic Studies)

Studies show that education has a positive impact on economic growth not only directly (through the development of new knowledge and improved technology), but also indirectly, by creating a favorable social environment. The educational level of the individual is significant for almost all types of social interactions. There are two hypotheses that explain this dependence. First, education reduces the level of violence in society: weapons in resolving conflicts are replaced with courts and legislative bodies, which contributes to better protection of property rights and hence economic growth. Second, education has significant positive externalities: joint training is an important part of socialization and formation of shared mental models. While not mutually exclusive, these hypotheses point to the crucial role of education in the accumulation of social capital.