A Networked Global Economy: The Role of Social Capital in Economic Growth

Understanding the drivers of economic growth is one of the fundamental questions in Economics. While the role of the factors of production-capital and labor-is well understood, the mechanisms that underpin Total Factor Productivity (TFP) are not fully determined. A number of heterogeneous studies point to the creation and transmission of knowledge, factor supply, and economic integration as key aspects; yet a need for a systematic and unifying framework still exists. Both capital and labor are embedded into a complex network structure through global supply chains and international migration, and it has been shown that the structure of global trade plays an important role in economic growth. Additionally, recent research has established a link between types of social capital and different network centralities. In this paper we explore the role of these measures of social capital as drivers of the TFP. By leveraging the EORA Multi Regional Input Output and the UN International Migration databases we build the complex network representation for capital and labor respectively. We compile a panel data set covering 155 economies and 26 years. Our results indicate that social capital in the factors of production network significantly drives economic output through TFP.