Study Overview
We estimate the effect of social capital on the ability of households to insure consumption after unexpected negative shocks. Many theoretical models argue that strong ties to extended family members and to one’s community help protect families when an adult becomes ill or disabled. Using household-level longitudinal data on Indonesian families, we test whether consumption declines less after a negative health shock for those with many ties to their community and for those in a community with dense ties. We take advantage of a particularly rich set of measures of social capital including measures of civic participation; the existence of traditions of mutual cooperation; long-term relationships in the community and ethnic and linguistic diversity. We also examine the role of a large and prosperous extended family. We find little support for the hypothesis that social capital is the capital of the poor.
Study Results
The results indicate that social capital defined in terms of civic participation, social norms of mutual cooperation, length of tenure in a community and ethnolinguistic fragmentation, does not appear an important factor in helping households cope with negative health shocks. We interpret these finding as saying that many community characteristics that theoretical models would suggest increase informal insurance are in fact not empirically important.