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American Economic Review Vol. 94 No. 3 2004

The Role of Social Capital in Financial Development

Luigi Guiso1; Paola Sapienza2; Luigi Zingales3

1 Department of Economics, University of Sassari, Ente L. Einaudi for Monetary Banking and Financial Studies, Via Due Macelli 73, Rome 00187, Italy, and CEPR. · 2 Kellogg School of Management, Northwestern University, Evanston, IL 60208, and CEPR. · 3 Graduate School of Business, University of Chicago, 1101 East 58th Street, Chicago, IL 60637, NBER, and CEPR.

Abstract

To identify the effect of social capital on financial development, we exploit social capital differences within Italy. In high-social-capital areas, households are more likely to use checks, invest less in cash and more in stock, have higher access to institutional credit, and make less use of informal credit. The effect of social capital is stronger where legal enforcement is weaker and among less educated people. These results are not driven by omitted environmental variables, since we show that the behavior of movers is still affected by the level of social capital of the province where they were born.

DOI
10.1257/0002828041464498
Volume
94
Issue
3
Pages
526-556
Language
en
Sources
crossref openalex

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