Social Capital and the Ways It Affects the Economy

This paper is to theoretically review the concept of social capital and six ways that this concept can affect economics. Social capital is a concept that states the quantity and quality of relations between members of a society. The more the social capital, the less the transaction cost, and the more opportunities available for mutually beneficial collective actions which means we may face fewer problems that result to market failure. The experimental literature of social capital has shown the importance of this concept in many economies. Most studies have shown the important role of social capital in some fields such as creation of human capital, efficiency of government, having more innovations, flow of information and achieving more economic growth.