Social capital and regional economic performance: a study across US Metropolitan Statistical Areas

Researchers, policy makers and business leaders alike recognize that social relationships and interactions are critical to the success of individual businesses and to the economic development of communities and regions. While social capital concepts are popular among economic developers, many are difficult to conceptualize and develop into practical metrics that can be reliably compared across Metropolitan Statistical Areas (MSAs) in the United States. This chapter makes a brief summary of use of a broad array of social capital indicators for economic development and then provides an empirical example of their impact on two key indicators of regional economic performance – GDP per employee and compensation per employee. We present 25 empirical measures based on key components of social capital including culture, civic behavior, organizational membership, local industry employment, as well as demography, all based on recent data. We use factor analysis to group and then create a subset of these measures for models that effectively measure their impact on growth in worker compensation and GDP per worker from 2007 to 2013. We find our social capital measures fit into seven distinct factors, with homogeneity associated with the largest positive impact on economic performance and anomie having the largest negative impact. Other factors, such as gentrification, had the mixed impact of higher GDP per worker but lower worker compensation. Our results confirm the importance of social capital measures to be used in conjunction with economic conditions and human capital factors in predicting development.