We propose and test the hypothesis that social capital is an important determinant of total factor productivity (TFP) growth. Using a new historical dataset on 33 Indonesian provinces covering the period 2010–18, we show that social capital enhances growth through research and development (R&D) expenditure. Our analysis is based on a modified endogenous growth model, and the estimations reveal that a unit standard deviation improvement in aggregate, tangible and intangible social capital, and religiosity improves TFP growth by at least 9.80% (of the mean TFP growth) through R&D spending. These results are robust.
- research and development expenditure
- social capital
- total factor productivity growth