How do social capital and government support affect innovation and growth? Evidence from the EU regional support programmes

This research investigates the role of social capital and government intervention in explaining the differences of innovation output and economic growth for regions of the European Union from 1990-2002. Using several measures of social capital and innovation, and the European Union’s Objective 1, 2 and 5b figures for EU regional support, the estimates suggest that EU funding is not significantly contributing to economic outcomes, while social capital is. Investigation of a possible complementary relationship between social capital and government support reveals that regions with higher levels of social capital are more likely to effectively gain from EU regional support programmes. This result implies that aside from the benefits associated with the direct effect of social capital on economic outcomes, social capital appears to be a critical prerequisite for the effective implementation of government programmes. From a policy perspective, it appears to be important to stimulate education to foster human capital formation. When combined, human capital and social capital are likely to yield stronger effects for effective policies which increase economic outcomes.

JEL classification: O1; O3; O52; Z13

Key words: Social capital; Innovation; Economic growth; European Union, Structural funds

UNU-MERIT Working Papers ISSN 1871-9872