Returns to Relationships: Social Capital and Household Welfare in India

Abstract

Sociological scholarship, economic theory, and empirical studies all indicate that interpersonal relationships are valuable productive assets and deserve to be formally incorporated into the study of human development. This paper employs the India Human Development Survey to examine, using OLS and logistic regressions, the impact of different dimensions of social capital on multiple proxies for household welfare. Social capital in the form of memberships in local community organizations and social network connections has a statistically and economically significant association with household consumption expenditures, physical asset ownership, and the probability of a household living in poverty. Households that are members of any formal community organization are expected to have higher monthly per capita consumption expenditures than households without any memberships. Estimates of a similar magnitude are observed when modeling a household’s stock of physical assets, a longer-term indicator of economic welfare. These indicators of social capital are also significantly associated with lower odds of a household living below the poverty line. Organizational memberships and social networks are also associated with considerably higher odds of a household assessing its own economic situation positively. Overall, social capital is a catalyst for increasing household welfare along multiple dimensions, and, therefore, a critical area of focus for economists, sociologists, development practitioners, and policymakers.