Social Capital and Reduction of Poverty

Abstract

Economic development is important for every country as it not only generates prosperity but also increases the size of the economy and subsequently elevating the living standard of its citizens.  Social capital is one of the tools which aid economies in their development and eradication of poverty. The study conducted is focused on analyzing the relationship of the constituents of social capital and poverty rate through the use of the fixed-effect model. The analysis has shown some surprising results. For instance, educational spending and health spending have been found to raise poverty rates. Such relationships can be explained through the phenomenon of brain drain or lack of equal opportunities. Further study in the highlighted areas is needed to investigate these contrasting relationships. Various aspects of social capital become more potent, social capital’s dividends. The more potent a social capital is (more externalities, it creates and easier it is to exploit it), the more effective it is to eradicate poverty, which is the prime concern for nations

Introduction

For governments, economic development is of great significance, and economic development allows governments to realize various kinds of objectives, which include poverty. For instance, economic growth increases the size of employment in an economy, which is one of the primary concerns of any government. Therefore, there is an extraordinary emphasis on economic growth, which naturally puts focus on physical and human capital (Borowy & Schmelzer, 2017). In recent decades, we have seen the devising of potent strategies by governments that address primary economic, political, and social concerns. However, the analysis of evidence about the results of these political-economic policies reveals that realization of political-economic goals does not necessarily facilitate governments in realizing social-development goals. In fact, the evidence suggests that through the global economic system it continues to work efficiently; however, it does not affect indicators of social development (Thomson, 2015).

These results are concerned, which has compelled states and financial/economic institutions to re-investigate political-economic objectives and their association with social development. For instance, in recent years, many studies have endeavored to discern the relation between political-economic objectives. The bulk of the studies suggests that economic development has a small impact on social development; whereas some studies suggest that social development positively impacts economic development and; therefore, social development could be used as an instrument to realize various political-economic objectives.

These findings emphasize social capital, which is a broad term and still be understood and defined (Narayan & Woolcock, 2000). When systematically scrutinizes literature, we learn that social capital is considered a tool or instrument to reduce poverty, which is an aspect of economic development. In fact, social capital is viewed as a means to address major economic challenges such as sustainable economic growth, high employment, and poverty reduction. Also, some international financial and economic organizations/countries are perpetually attempting to economic and financial policies with social development and the element, which these countries/organizations are emphasizing to align these objectives, is social capital. Therefore, it is imperative to discuss social capital, at various levels and contexts, to understand its influence or impact on the reduction of poverty in general and on public policies, urban poverty, gender discrimination, rural regions, and environmental deterioration (Fournier, Oyen, Oliveira, Woolcock, & Prakash, 2002).

Most of the academic/research studies, about the role of social capital, on the development, explore the 1) nature of the association and 2) size of the association. Some studies use empirical information to understand the nature of the association, between social capital and socioeconomic developments, and the size of the association. In this academic exercise, we will 1) study/explores the relationship between social capital and socioeconomic development (multiple factors) and 2) we will study how investment in social programs affects social capital and poverty reduction (at state/government level) (Woolcock, 2001).

Literature Review

Economic Development

As per Miletzki and Broten (2017), economic development is considered a process, rather than a result, which is employed to improve the health of the economy. However, to effortlessly comprehend, it is also understood as a result of the implementation of a successful economic policy. Therefore, we can say that economic development is an objective, which is realized by implementing economic policy. One of the consequences of economic development is high employment, which adversely affects poverty (reduces it) (2017).

It has been discussed by Yao (2000) that different countries employ different kinds of strategies/policies to ensure economic development. For instance, most economies rely on monetary policy to realize economic objectives, whereas some countries, especially developing countries, depend on fiscal policy to for rapid economic growth. However, whatever the policy, the emphasis mostly remains on conventional factors, which include physical and human capital along with interest and government expenditure, to ensure economic growth. For instance, China applied a purely economic policy that emphasized on human and physical capital to reduce poverty and increase development.

Commonly, it is understood that economic development influences social development too. For instance, an increase in employment and wages reduces economic and psychological burdens, which facilitates social development. However, the study conducted in 2015 by Thomson revealed that economic efficiency does not necessarily benefit people and it may sometimes lead to income inequality and increase in poverty (Bartolini & Sarracino).

Both income inequality and poverty are serious socioeconomic concerns; however, poverty remains to be the prime concern, as it is more impactful and evident, according to some studies. Poverty is more apparent, and governments can affect them in the short run; therefore, governments target poverty rather than income inequality, which is a more complex subject and difficult to address (require structural changes in the economic system) (Feldstein, 1998). According to Carter & Barrett (2006), even though poverty reduction remains the main component of every economic strategy; however, conventional economic strategies and tools to take enormous time to eradicate poverty, which is very persistent. Also, economic development does not necessarily reduce poverty, which is why economists are not only re-investigating various aspects of poverty, but also identifying different alternatives to address the challenge of poverty. Also, poverty is being re-understood in various contexts (2006).

Poverty

Poverty is an evolving concept, and its understanding is political-economic. According to its general and broad understanding, poverty is a lack of material possessions, which are necessary to meet basic needs, which include food, clothes, and shelter. However, in different economies, understanding and measurement differ slightly. For instance, in the United States, a criterion has been developed to identify a poor household. As per this criterion or standard, set by the Census Bureau, if pretax money of a family is below the poverty threshold, such family is considered poor. Monetary criteria are also used to explain poverty. Organizations, such as UNESCO use both relative and absolute terms to explain and measure poverty, in addition to the income poverty criterion. In absolute terms, poverty is considered an amount of money needed to meet basic requirements, whereas relative poverty is defined as poverty or lack of materials in comparison to the other members of society (UNESCO, 2018).

For instance, relative poverty deems those people poor, who are not at the prevailing standards of living. This understanding of poverty is quite comprehensive and complex, which reveals how difficult this subject or phenomenon poverty is and why it is quite difficult to address it. Studies suggest that though globalization has intensified economic activity (globally); however, it has also increased the size of financially marginalized individuals and groups. For instance, in the United States, despite robust economic progress, the poverty rate has remained quite stable, which demonstrates that 1) poverty is persistent and 2) conventional economic development does not affect it strongly. Therefore, the emphasis has shifted to democratic macro-economic controls, which ensures not only sustainable economic growth, but also social development (regarding poverty reduction) (Harrison, 2006).

Also, extreme poverty is also considered a kind of violation of human rights. It is because poverty affects the dignity of an individual, which is considered a universal human-right (human beings have equal dignity) (United Nations, 2012). Also, states came into existence to protect and nourish life. Across the political spectrum, there is a consensus on this notion that directly or indirectly, a state should provide equal opportunities and facilitate humans to have a decent standard of living, which include adequate housing, employment, healthcare facility and others (Esping-Andersen, 2007). Therefore, poverty is a serious concern and primary socioeconomic challenge, which governments try to address through conventional economic/financial strategies. However, more and more studies are suggesting the conventional economic strategies are not adequate. As the conventional means or strategies are failing, more and more studies are suggesting denying, implicitly and explicitly, trickledown theory, which is an extreme neo-classical idea to reduce poverty. These studies put individuals at the center of all kinds of development including socioeconomic development. Therefore, the interest in social capital has inflated as it is being considered the mean to the development and an instrument to realize various relevant socioeconomic objectives (Datt & Ravallion, 2002).

Social Capital

Social Capital was typically studied in sociological and political contexts. However, recently, it is being studied in economic context, as studies assert that social capital could be one of the tools of economic development. Therefore, recently, socioeconomic development studies are emphasizing on social capital and studying its effect on various aspects of the economy, including employment (poverty reduction), urbanization (related to industrialization and wages), and equal opportunities for men and women in the corporate sector and industry, etc. (Woolcock, 2001). In the context of economy, social capital is social because it produces social externalities, which mostly arise from social interactions. In fact, social capital aids in understanding the social dimension of economic development, which is beginning to be at the heart of all economic development. It is already quite evident, from the investigation of literature/evidence that focuses on countries and international economic organizations is shifting towards socioeconomic development from purely economic development. Therefore, the study of social capital and its formation is essential (Grootaert, 2002).

As mentioned earlier, social capital is a broad term; however, its basic understanding is quite comprehensible despite various layers to this term. Conventional wisdom defines social capital as contacts/references, who you know. Therefore, social capital is contacted and references, which allow people to realize various kinds of goals or objectives. This understanding of social capital is relevant at social level; its understanding on the state level (in political-economic context) is quite different (Fisher, Maginnis, Jackson, Barrow, & Jeanrenaud, 2012). Another general understanding, of social capital is family, friends, associates, and colleagues, which may constitute an important asset, which an individual can exploit for financial benefits or mitigate a crisis. It is not only true for individuals, but it is also relevant for groups, as groups can leverage their social capital, in the form of references or contacts, for material gains (Halpern, 2005).

Studies suggest that communities, which are more organized, can counter poverty and other economic vulnerabilities more effectively, as these communities or individuals in these communities can financially and socially aid individuals/families/groups. Studies also suggest that individuals who lack social contact (do not have many contacts or references), are more vulnerable to financial and social challenges. For instance, those who emphasize on networks and contacts can exploit more corporate opportunities, and they benefit more than those, who lack contacts or do not access to a network (Adler & Kwon, 2002).

This basic information allowed scholars to develop a more formal and comprehensive understanding about social capital. As per comprehensive and formal understanding, social capital is an amalgamation of norms and networks, which facilitate individuals and groups to act collectively. It provides necessary resources and tools to financially and socially beneficial. In purely economic context, at the community level, it is an instrument that facilitates individuals to attain monetary benefits and to mitigate the challenge of poverty (Woolcock, 2001).

Components of Social Capital

Academic exercises and studies, about social capital, enable us to discern various components of social capital. However, some of the components are more relevant than the others. For instance, Networking, Trust, and Reciprocity are some of the basic elements of social capital. However, it is also a fact that at the community level their understanding is different from the state level (Borowy & Schmelzer, 2017).

Community Level

Trust

The significance and relevance of trust are well-established. Classical and contemporary social and political literature consider trust as one of the cornerstones of socio-political systems. In recent studies, scholars such as Putnam have emphasized trust in a socioeconomic context. Trust has a broad understanding of it also considered a tool to enhance network and make it robust, which ensures that individuals, who constitute this network, may leverage it to benefit monetarily and to address various financial and social challenges. Some studies also suggest that dense networks of voluntary associations and organized communities work in such a fashion that generate trust, which is emphasized to benefit in various manners that include monetary benefit.

Trust is considered a basic element as it provides the basis for interaction. These interactions could be of various types, and they provide opportunities to develop resources and exploit them when required. The very outward dimension of social capital is, in fact, a testament to trust (Newton, 2001).

This information suggests that trust provides a foundation to networks, which evolve as the level of trust affects. For instance, when two individuals are transparent and trust one another, they come together to develop an association that can be tested at any particular period. In the context of monetary assistance, a person would facilitate or aid others, only when he/she trusts the narrative and commitment of that person, who requires help. Therefore, social-trust is a major component of social capital, however it is different from the political trust, which is different in nature, and which benefits in a different manner (Adler & Kwon, 2002).

Reciprocity

Another primary component, of Social Capital is reciprocity. The term is generally understood as the practice of exchanging materials/things in such a manner that it benefits all parties. Social capital creates mutual opportunities, and it benefits all participating parties. For instance, when a network obliges an individual, say by finding him/her employment, which employed individual becomes a resource for the network. The resource may return the favor in the form of information or assist another individual who requires employment. Another example of reciprocity is that an individual would not attempt to cross that person with whom he/she has a social relation, as the consequences of that are stern, especially in an organized society. As bad behavior or breach of trust would produce negative externalities, which affect entire communities; therefore, such bad behavior or breach of trust is strongly contested. Consequently, in a social context and at the community level, reciprocity constitutes social capital (Wasko & Faraj, 2005).

Network

Network or social network is defined as a multiplicity of the association. Therefore, the individual association is a fundamental element of the social network, which is based on both trust and reciprocity; however, the associations, which constitute a network, are conditioned by the networks themselves. In a social context, networks are important as they provide a sophisticated and elaborate mechanism to benefit from social capital. For instance, a network may produce an opportunity for an individual to move ahead in the corporate sector. Similarly, a network can assist an individual who is in a monetary crisis. Therefore, networks are components of social capital, and in literature, there is enormous evidence about it (Ellison, Steinfield, & Lampe, 2007).

At State Level (Above and Beyond Community)

Trust

The basic understanding of trust remains similar in socio-political context. However, its manifestations and objectives are different social capital context. For instance, in a socio-political context, trust has only one manifestation (generally), which is a vote, and it only has only one process (in democratic systems) to demonstrate trust, which is electoral voting. This kind of trust is also built on political narrative and political history. For instance, individuals examine political narrative and past performance of a political party, before manifesting trust electorally. The examination of evidence also makes it vivid that in a social-political context, trust is generally one-directional, which affects the nature of social capital. Also, a higher rate of participation does not always produce desired socioeconomic results (Carter & Barrett, 2006).

Reciprocity

Reciprocity, which is a major component or element of social capital, is almost identical in a socio-political context. For instance, when organized political networks breach trust and fail to implement their stated political-economic and socioeconomic agenda, they suffer electorally. However, when organized political networks (political parties) can deliver their promises or they can implement their state political, economic, and social-economic agenda, they benefit electorally. Therefore, the principle and element of reciprocity are very similar, and it affects social capital in an almost similar manner (Fisher, Maginnis, Jackson, Barrow, & Jeanrenaud, 2012).

Networks (Political)

The structure and organized political networks are quite different from social networks, as its social networks provide various kinds of benefits to those who are in the loop. However, political networks benefit individuals, groups, and countries, in a certain manner only through state institutions (Feldstein, 1998).

Social Capital, Development and Poverty Reduction

Modern theories about socioeconomic development put individuals at the heart of development. It is because conventional economic strategies did not affect social realities, such as social, socioeconomic development and poverty, as they must have. For instance, despite robust economic activity in various developed and developing countries, poverty remained persistent, and income equality increased. The results also have a positive relation to globalization, which is considered one of the causes of persistent poverty and income equality.

Therefore, the emphasis is on social capital, as it promises to be an instrument that may change undesirable socioeconomic realities. Theoretically and empirically, studies have established a positive relationship between development and social capital. However, the relationship between social capital and poverty reduction is ambiguous. Also, studies also reveal that development also has a very small impact on poverty (Cecchi, Molinas, & Sabatini, 2009).

From the study of literature, it is apparent that social capital is exploited and tapped at both community and government level. For instance, when individuals may form their social resources and transform them into social capital. The other approach requires changes in governmental policies about an economy that are supported by social development programs, such as healthcare, literacy/education, communication, an organization of communities, shelter, gender equality, family planning, etc. The combination of economic policies and social development programs constitutes social capital. In the near past, voluntary development of associations, networks, and participation in social movements were considered social capital. However, its understanding has changed in social development and poverty eradication contexts. For instance, now governments are also suggested to invest in the community, like non-governmental organizations, to increase social capital, which positively affects socioeconomic development. Governments can use their financial and non-financial resources to organize communities and provide the necessary power and funds that increase efficiency and multiplier effect of social capital (Yao, 2000).

The delegation of power and funds to strengthen communities and increase the social capital of individuals is one of the strategies, which is being combined with economic policies to bring about desired change, which included poverty eradication. However, some studies also prefer that governments and communities must also encourage individuals are being encouraged to invest in such organizations and networks, which further their interests and not necessarily the interests of society at large (individualism).

 Social Capital and Gender Dimension

Several studies suggest that gender discrimination causes persistent nature of poverty. Therefore, governments around the world have devised various kinds of policies to ensure a reduction in gender discrimination, which could lead to poverty reduction. However, pre-political economic development failed to address gender discrimination issues effectively. However, there is a possibility that social capital may take gender dimension and allow marginalized gender to produce and exploit various kinds of opportunities. It must be acknowledged that size of social capital may differ for genders, depending upon the culture and social-political-economic structure, however, its nature remains the same for all genders. For instance, a woman can effectively exploit her social capital, which includes her contacts and networks, to benefit financially and socially. However, it’s also the fact that marginalized gender would require more effort to exploit his/her social capital. Government plays a role through its institutions and social programs to reduce the consumption of resources and efforts by marginalized genders to exploit their social capital. For instance, special programs are being developed that increase the capacity of individuals to enhance their social capital and develop instruments to exploit that social capital (Wasko & Faraj, 2005).

Marginalized genders are the focus of these specially devised programs, and non-governmental organizations are being employed as a tool by the government to meet the said objective. The emphasis is not only on the development of a comprehensive strategy to increase social capital of marginalized gender, but also the focus is also on the effective implementation of devising policy. It is apparent the social capital is taking gender dimension, in poverty eradication context, and the reason for it is that poverty eradication is not possible without the end of discrimination on gender lines (United Nations, 2012).

Social Capital and Urban Poverty

In recent years, the size of urban centers has swelled dramatically, which has affected socioeconomic development. As the prime focus of development is usually large urban centers; therefore, migration to urban centers is natural. When we study the phenomenon of urban migration and the swelling or urban centers, we learn that social capital plays an important role in the growth of urbanization. For instance, individuals use their contacts and references to identify economic opportunities, such as employment. These contact or networks are emphasized to exploit the economic opportunity that an urban center produces. Similarly, families tend to trust their members more, especially from rural regions, where trust is found in its most refined form. These family members are asked/requested to move to urban centers to aid them in running a business or something similar. These two examples provide us with the necessary understanding regarding how social capital is affecting growth or swelling of urban centers. The increase in the size of the population of urban centers directly affects the labor market. It shifts the supply of labor to the right, which decreases nominal wages. As the nominal wage decreases and size of consumption or inflation increases (demand for goods and services because of the increase in population), poverty also grows in urban centers (Ellison, Steinfield, & Lampe, 2007).

The extraordinary increase in the supply of labor also increases unemployment, which affects not only individuals, but also socioeconomic development, as low wages and high prices affect an individual’s family’s ability to live a standard life. Also, when wages are too low and prices too high, poverty increases, both absolute and relative poverty. It is one of the reasons why poverty is increasing in urban centers, and this is also the reason that urban poverty is more stubborn or persistent. New theories, pertaining to social capital and development/poverty reduction, are suggesting that urban poverty can be reduced by emphasizing social capital. Non-government organizations and social programs may be employed to increase/refine the social capital, which could facilitate individuals and groups to leverage social capital to identify and exploit more lucrative opportunities. The expansion and refining of social capital are considered essential for effective eradication of poverty. Studies are distinguishing refined or high-quality social capital from low quality or poor social capital, which could be detrimental to individuals, or it may not allow them to exploit their potential (Fisher, Maginnis, Jackson, Barrow, & Jeanrenaud, 2012).

Social Capital, Social Programs, and Poverty Reduction

Theoretically, it is quite established that social capital can enhance the quality of social-economic development and it aids in eradicating poverty. Empirical evidence too is piling up, which endorses the theory that social capital could be an instrument for the eradication of poverty. However, the emphasis is also on social programs that aim to increase social capital of individuals. For instance, the quality of social capital is of great relevance and therefore, governments and non-governmental organizations are developing various social programs to enhance social capital and also to refine its quality. Social programs are of various kinds, such as literacy and social networking programs, which affect certain aspects of social capital (Bartolini & Sarracino, 2015).

Methodology

The academic exercise has two parts. In the first part, we will analyze the explored evidence about social capital, its role in eradicating poverty, in enhancing socioeconomic development, its gender dimension and its impact association and impact with urban poverty. In the second section of this academic/research exercise, we will analyze how social programs and urbanization affect poverty rates in different countries. For that, we have selected data, which stretches for 11 years. It would provide us with an answer regarding the impact of social programs on social development.

Source of data.

World Bank

Our World in Data

Variables of Estimation and Nature of Test

Variables which we have selected to constitute social programs are 1) Government expenditure on education and Domestic Government Expenditure on health. Poverty rate will be the dependent variable. To understand whether urban population also affects the poverty rate, we have also included urban population. Theories assert that urban poverty is linked to asymmetric urban population, which is also directly associated with social capital, as we have learned that social capital positively impacts urbanization. We intend to learn how social programs affect poverty in selected countries and how population growth is associated with overall poverty.

The selected countries are 1) Argentina, 2) Brazil, 3) Costa Rica, and 4) Indonesia. We have selected these countries because of the availability of data.

Discussion of Explored Evidence

From the study of the theoretical and empirical evidence, we learn that social capital is formed by elements such as 1) Trust, 2) Networks, and 3) Reciprocity. We have also learned that some studies have reduced social capital to networks or contacts, which is not fair. The contemporary concept or understanding of social capital is more comprehensive and based on the elements that we have discussed before.

Social capital is essential in developing context because it puts individuals right at the heart of development. Previous developmental and poverty eradication strategies were primarily based on economic strategy, particularly on trickledown theory. The evidence suggests that despite robust economic activity, income inequality and poverty remain persistent. For instance, in many developed countries, such as the United States, poverty remained unaffected despite the remarkable performance by the economy in different phases. Also, pure economic strategies, also failed to address challenges such as discrimination on gender and ethnic lines. It was believed that conventional neo-classical strategies, which were predominantly political-economic rather than socioeconomic, would be able to address the issue of discrimination, by producing enormous economic/corporate opportunities. However, the results are quite disappointing, which has led to re-visit of conventional economic strategies that aim to realize various goals.

Theoretically, social capital facilitates individuals to identify and exploit economic opportunities. In recent studies, researchers have attempted to establish a credible association between social capital and poverty eradication; however, the empirical evidence is vague or apocryphal. However, studies have suggested that various components of social capital affect poverty in particular cultures/economic/political-social systems. For instance, there is enormous evidence that suggests that personal relations and being part of a network enormously benefit individuals that work in a firm. In fact, it is believed that social connections are imperative to increase corporate and business prospects.

Trust also plays an important role in 1) increasing corporate/business prospects and 2) in mitigating the challenges such as monetary crisis and poverty. For instance, societies, where trust as great social relevance, poverty, and such other challenges are not so robust.

Reciprocity is another element, of social capital, and it has great relevance. It is evident that mutual benefits or mutual concerns are driving force behind social and economic progress. Reciprocity keeps associations in checks, and it improves the quality of social capital. If in an association, an individual believes that the consequence of his/her adverse actions would be small, then association deteriorates, which affect social capital. Similarly, when individuals know that would not benefit from the association, then also association would deteriorate.

It establishes that various components of social capital are relevant in different societies. However, in some political-social-economic systems, all components of social capital are relevant, and they form the true social capital of high quality. It is very evident that all components of social capital may affect poverty. However, it largely depends upon the quality of social capital. It is also evident that government and non-government organizations can enhance the quality of social capital and there are several studies that suggest that through social programs and delegation of power, size and quality of social capital, can increase, which will aid in addressing not only poverty but also discrimination on ethnic and gender basis. For instance, when the government would invest to increase social capital of marginalized gender, the poverty rate would affect.

Statistical Analysis

Country	Year	Domestic general government health expenditure (% of GDP)	Government expenditure on education, total (% of GDP)	General government final consumption expenditure (% of GDP)	Urban population growth (annual %)	Poverty Rate
Argentina	2004	2.603953	3.48652	11.11464	1.299063	3.16
Argentina	2005	2.658147	3.86001	12.14186	1.276009	2.27
Argentina	2006	2.866263	4.12821	12.42942	1.25236	1.91
Argentina	2007	3.054725	4.4626	12.98932	1.232538	1.77
Argentina	2008	3.113583	4.84441	13.63351	1.221409	1.43
Argentina	2009	3.657817	5.53105	15.9039	1.218098	1.49
Argentina	2010	3.710831	5.01971	15.16372	1.223196	0.97
Argentina	2011	3.628121	5.29063	15.68896	1.228277	0.83
Argentina	2012	3.987371	5.34583	16.64544	1.22798	0.77
Argentina	2013	4.252272	5.43661	16.80624	1.219098	0.95
Argentina	2014	4.50918	5.36144	16.94988	1.198779	0.97
Brazil	2004	3.466939	3.97449	18.46763	1.614974	4.47
Brazil	2005	3.345275	4.47908	18.88999	1.551131	3.88
Brazil	2006	3.541514	4.8706	19.03895	1.48695	3.32
Brazil	2007	3.48492	4.97426	18.94298	1.426186	3.59
Brazil	2008	3.504595	5.26884	18.83942	1.376919	2.92
Brazil	2009	3.707727	5.46355	19.65066	1.340078	2.9
Brazil	2010	3.577187	5.6488	19.01686	1.315945	2.91
Brazil	2011	3.466608	5.73741	18.66923	1.296926	2.93
Brazil	2012	3.356159	5.8551	18.53008	1.266898	2.48
Brazil	2013	3.556162	5.83885	18.89248	1.234536	2.77
Brazil	2014	3.708908	5.94848	19.15352	1.194708	1.72
Costa Rica	2004	4.449832	4.91218	14.06026	3.52164	2.93
Costa Rica	2005	4.334218	4.89475	13.5745	3.416384	2.03
Costa Rica	2006	4.659566	4.63918	13.20281	3.32973	2.1
Costa Rica	2007	4.709073	4.6589	12.81682	3.234005	1.22
Costa Rica	2008	5.152205	4.91712	13.56031	3.131286	1.55
Costa Rica	2009	5.671314	6.04635	15.77394	3.012531	1.89
Costa Rica	2010	5.931988	6.63445	16.75916	2.894067	0.73
Costa Rica	2011	6.24158	6.45535	17.16435	2.772725	0.67
Costa Rica	2012	6.097122	6.68984	17.07923	2.622592	0.68
Costa Rica	2013	6.327245	6.84934	17.57082	2.48175	0.6
Costa Rica	2014	6.032587	6.85891	17.47334	2.352757	0.69
Indonesia	2004	0.814246	2.58138	7.815969	3.15207	5.37
Indonesia	2005	0.795204	2.69817	7.616518	3.115082	4.43
Indonesia	2006	0.901947	2.73464	8.10271	3.085015	6.48
Indonesia	2007	1.106126	2.85919	7.839075	3.050611	4.81
Indonesia	2008	0.98626	2.72549	7.911686	3.018602	4.35
Indonesia	2009	0.996027	3.31083	9.006237	2.973796	3.6
Indonesia	2010	1.052849	2.81228	9.005915	2.936819	2.91
Indonesia	2011	1.041963	3.18944	9.058677	2.870139	2.36
Indonesia	2012	1.159518	3.40748	9.248788	2.802819	1.91
Indonesia	2013	1.253023	3.35904	9.51772	2.730267	1.5
Indonesia	2014	1.327574	3.28801	9.425026	2.649083	1.25

Data Table adapted from World Bank. (2018, January 31). World Development Indicators. Retrieved June 19, 2018, from http://databank.worldbank.org/data/source/world-development-indicators#

Model 1: Fixed-effects estimates using 44 observations

Included 4 cross-sectional units

Time-series length = 11

Dependent variable: Poverty-Rate

Variable	Coefficient	Std. Error	t-statistic	p-value
Domesticgeneral	1.24989	0.593954	2.1044	0.04517	**
GEE	1.00271	0.387225	2.5895	0.01554	**
GFE	-0.452675	0.225241	-2.0097	0.05494	*
Urbanpopulation	1.51701	0.802537	1.8903	0.06992	*
dt_2	-0.838459	0.412402	-2.0331	0.05237	*
dt_3	-0.770344	0.413935	-1.8610	0.07409	*
dt_4	-1.58289	0.436421	-3.6270	0.00123	***
dt_5	-1.96667	0.457537	-4.2984	0.00021	***
dt_6	-2.30832	0.555627	-4.1544	0.00031	***
dt_7	-2.89187	0.545197	-5.3043	0.00002	***
dt_8	-3.09856	0.575252	-5.3864	0.00001	***
dt_9	-3.36383	0.612418	-5.4927	<0.00001	***
dt_10	-3.4199	0.629288	-5.4346	0.00001	***
dt_11	-3.64306	0.641967	-5.6748	<0.00001	***

 

Mean of dependent variable = 2.37432

Standard deviation of dep. var. = 1.41216

Sum of squared residuals = 8.2789

Standard error of residuals = 0.564287

Unadjusted R² = 0.903454

Adjusted R² = 0.840327

F-statistic (17, 26) = 14.3118 (p-value < 0.00001)

Durbin-Watson statistic = 1.67089

Log-likelihood = -25.6828

Akaike information criterion = 87.3655

Schwarz Bayesian criterion = 119.481

Hannan-Quinn criterion = 99.2755

 

Test for differing group intercepts –

Null hypothesis: The groups have a common intercept

Test statistic: F(3, 26) = 7.27813

with p-value = P(F(3, 26) > 7.27813) = 0.00106371

 

Wald test for joint significance of time dummies

Asymptotic test statistic: Chi-square(10) = 43.0942

with p-value = 4.78387e-006

Discussion on Statistical Analysis

The results, of the statistical analysis about the social programs’ impact on poverty, are very interesting. The statistics reveal that health-expenditure, final consumption, and education expenditure have a significant relation with the dependent variable, which is poverty rate. Interestingly, domestic healthcare care expenditure and government expenditure on education have a positive relation with poverty in selected countries; however, financial consumption (% of GDP) has a negative relation with poverty, which means the increase in government expenditure reduces the poverty rate. The Urban – population does not have a significant relation with a poverty rate; however, the nature of the relationship is negative, which means that an increase in the urban population reduces the poverty rate. These results are interesting as they strongly affect general perceptions regarding the association of different social programs with the poverty rate.

Conclusion

In the end, it can be concluded that social capital is at the heart of the contemporary development program, and it is being considered a tool to eradicate poverty. It is also quite apparent that different components of social capital, which we have discussed in great detail, are quite relevant in eradicating poverty. However, the empirical evidence regarding the social capital (with all its constituents), as a tool for eradicating poverty is apocryphal. Also, we have also learned, from applying statistical tests (fixed-effect model) on the gathered data, that some of the social programs negatively affect poverty rate. For instance, expenditure on education positively affects the poverty rate (increases poverty rate). Similarly, expenditure on health care also positively affect poverty rate. However, final consumption expenditure negatively affects poverty rate. The results are in contrast to the general conventions about the impact of social programs on the poverty rate. The reason, of the increase in poverty because the increase in expenditure on education could be that economic system would not be producing employment at the same desired rate. There could be other explanations too, such as brain drain, for the negative relationship between education expenditure and poverty rates. However, this requires a comprehensive study of social programs, in the context of the economy to truly learn how these social programs affect poverty and why they have such statistical association with poverty.

Recommendations

• The size of data gathered must increase fully understanding the nature and size of the impact of social programs on poverty and socioeconomic development.
• It is also essential to identify more components of social capital and how they affect nature of social capital.
• The gender dimension of social capital is understudied, which is why it is important to theoretically and empirically study the gender dimension of capital.
• Various externalities of social should be studied in an economic context to understand their impact truly.

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