Research Accomplishment Reports 2011

Impacts of Social Capital on the Economic Development and Well-Being of Rural Areas

D. L. Debertin
Department of Agricultural Economics

 

Non-Technical Summary

Perhaps the most fundamental of all questions in rural economic development is whether development strategies that focus directly on attracting jobs to a rural area come first, or whether a rural community should instead try to take the necessary steps to make day-to-day living in the community as attractive as possible. The basic hypothesis to be tested in this project is that the presence and amount of social capital influences the course of economic development in rural areas, with particular application to economic development within rural Kentucky.

From a rural community policy perspective, the basic question this study will attempt to answer is "does social capital matter at all in influencing the course of rural economic development?" In particular, do communities that devote the greatest efforts toward making their locales nice places for people to live also improve their prospects for economic growth? If so, are there specific forms of social capital that communities should focus on as economic development strategy?

2011 Project Description

Most fundamental of all questions in rural economic development is whether development strategies that focus directly on attracting jobs to a rural area come first, or whether a rural community should instead try to take the necessary steps to make day-to-day living in the community as attractive as possible. A basic hypothesis being tested in this project was whether the presence and amount of social capital influences the course of economic development in rural areas, with particular application to economic development within rural Kentucky. From a rural community policy perspective, the key question this research attempts to answer is "does social capital matter at all in influencing the course of rural economic development" In particular, do communities that devote the greatest efforts toward making their locales nice places for people to live also improve their prospects for economic growth If so, are there specific forms of social capital that communities should focus on as economic development strategy

To the extent that the local community is successful in making the place desirable for residents, new people and business firms (and their employment opportunities) should want to locate there. Economic growth and development is a happy consequence or secondary effect of first creating the type of social environment where people want to live. State and local officials spend tax dollars primarily in efforts to make the community a better place to live, not in a competition with other communities by offering direct subsidies and tax breaks to businesses. Economic growth, that is, expanded employment opportunities at higher wages) becomes a consequence of the efforts directed toward making the local community a better place to live.

The major project completed during 2011 was a dissertation by John Conley. I served as a reader and committee member on that dissertation. The dissertation title was "Financial development and economic growth in Kentucky counties". The dissertation examined the impacts of the structure of local banking (options included small, locally-owned banks versus branches of larger banks serving rural communities) from the perspective of stimulating local economic development, economic growth and job creation.

2011 Impact

We continue to find that the presence or absence of social capital in a community matters to economic development, and further, that higher levels of social capital indeed create a stronger path to economic development. In the past few years, many urbanized areas have suffered greatly with high unemployment rates along with a continuing loss of high-wage manufacturing jobs. Many if not most states that are highly urbanized have suffered the most.

Historically, it has been the relatively sparsely populated rural states that experienced weak economic growth in comparison to urbanized areas and states. Now the situation has turned 180 degrees, with the rural states with economies that depend heavily on the agricultural and energy sectors faring well to very well, while many of the states with the highest urban populations not doing so well. The consequences of this fundamental shift are seen in all sorts of ways. People faced with high unemployment rates are beginning to move to where the jobs are located, in particular states located in the US mid-section and in states considered to have undesirable climates. Generally, sparsely populated rural states with economies largely based on agriculture and natural resources such as energy have fared better in the recent weak economy than have states that are highly urbanized, with stronger economies emphasizing jobs in manufacturing, financial and tourism-related employment. This is quite a shift from a decade ago.

It is clear now that while social capital may play a role in in-migration and economic development, the fundamental issue is that people tend to want to move to the places where the jobs are, that is, the areas of the country that offer real prospects for finding a job. The PhD study that attempted to link measures of economic growth to local banking structure yielded decidedly mixed results for policy planning. The research did not provide clear evidence that mergers of small local banks with larger regional banks significantly impedes economic growth in rural communities.