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Impacts of Social Capital on the Economic Development and Well-Being of Rural Areas
D. L. Debertin
Department of Agricultural Economics
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?
2009 Project Description
During 2009, a PhD dissertation was completed by Dr Agus Hudoyo under the direction of the Principal Investigator to analyze the linkages between varied measures of social capital and demographic data for Kentucky. Studies similar to this have been conducted using county-level data, but this analysis is unique and the first of its kind in that it utilizes data for Kentucky at the Zip code level. The title of the dissertation was "The Production of Social Capital and its Impact on Income: Using Zip Codes as a Unit of Analysis in Rural Areas of Kentucky". An important objective of local economic development is to make the local community a better place to live. This can be achieved by increasing the stock of social capital. This is because social capital is social networks that can facilitate cooperative action among individuals and communities. Zip code data as employed in the study presents both opportunities and problems for the applied social science researcher. Since Zip code level data generally comprises a much smaller and potentially more homogeneous demographic than do county-level data. Demographics can and frequently do vary widely within a county, and whole there can still be significant variation within a zip code, this variation will likely be much smaller than for an entire county.
In the dissertation, the models of analysis both factors affecting social capital and factors affecting income using Zip code data set were shown to be superior to county level data set. From a statistical perspective the combination of many more observation with greater homogeneity was shown to lead to better, more meaningful hypothesis testing. Particularly in largely rural areas, Zip codes can be quite tiny in population even if they cover a fairly large geographic area because every post office no matter how small the town is assigned a unique Zip code. We are very pleased to report success employing the technique of using Zip code rather than county level data, yielding far superior statistical results for the Zip code versus county-level data versus a variety of measures.
It is sometimes believed that the amount of social capital in geographic region such as a Zip code in our study would vary with simple measures of family income but this is not necessary true. High-income gated communities, for example, may measure rather low based on traditional social capital indicators. Conversely, some low income areas may possess high social capital. Further complexities are introduced with the introduction of non-geographic or semi-geographic social capital. The completed dissertation based on the Zip code data found that both income and age variables had a positive impact on the production of social capital, and also that increased social capital had a positive impact on family income levels.
Hudoyo, Agus. The Production of Social Capital and its Impact on Income: Using Zip Codes as a Unit of Analysis in Rural Areas of Kentucky. University of Kentucky, 2009.