Social Capital and Total Factor Productivity: Evidence From Plant‐Level Data

ABSTRACT

Using US Census microdata, we show that ethical social norms yield measurable economic benefits. County‐level social capital, which measures cooperation and the honouring of obligations, significantly enhances plant productivity, particularly where corporate oversight is weak, consistent with ethical norms substituting for costly monitoring. Plants in high–social‐capital regions also attract more skilled labour, invest more capital, deploy capital more efficiently and achieve higher output per worker. The effect of social capital on productivity is especially pronounced during adverse conditions.